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Beamformers are a commonly used method for doing source localization from magnetoencephalography (MEG) data. A key ingredient in a beamformer is the estimation of the data covariance matrix. When the noise levels are high, or when there is only a small amount of data available, the data covariance matrix is estimated poorly and the signal-to-noise ratio (SNR) of the beamformer output degrades. One solution to this is to use regularization whereby the diagonal of the covariance matrix is amplified by a pre-specified amount. However, this provides improvements at the expense of a loss in spatial resolution, and the parameter controlling the amount of regularization must be chosen subjectively. In this paper, we introduce a method that provides an adaptive solution to this problem by using a Bayesian Principle Component Analysis (PCA). This provides an estimate of the data covariance matrix to give a data …