Has Gold Finally Lost Its Appeal?
Because of the recent market volatility, gold hasn’t quite been grabbing the financial headlines as much as we’ve seen in the past. The precious metal was once all the rage as it was setting historic highs.
But now, the yellow metal is plunging. And while most investors are aware of the precipitous drop, they may not realize just how hard gold has been getting hammered of late.
Here’s the deal…
The price of gold has fallen 27% so far this year. According to Bloomberg, that’s the worst first-half performance since 1981 and has destroyed over $60 billion in value from assets in exchange-traded products.
Moreover, if gold doesn’t recover by the end of the year, it will end a streak of 12 consecutive annual gains. Clearly, this isn’t your everyday decline in gold. Something bigger is afoot.
So what’s going on?
In a nutshell, demand for gold has plummeted along with fears of a global economic meltdown.
You see, investors and institutions were hoarding gold as a store of value. That is, it was an asset which would retain value if paper currencies and stock certificates meant nothing.
Some retreated to the safety of gold in fear of a banking system collapse. Others bought gold as a hedge against inflation. And, plenty of investors just felt the popularity of the precious metal meant it was going to $2,000 an ounce or higher.
Basically, it’s now become clear each scenario is highly unlikely to darn near impossible to occur anytime soon.
Fears of a global banking collapse have eased with the slow recovery of the economy in most parts of the world. For the most part, political and economic concerns have eased as extreme conditions have lessened.
What’s more, with central banks around the world now openly discussing tapering their stimulus programs, fears of hyperinflation have all but disappeared. Not to mention, there haven’t been any signs of inflation to begin with throughout these periods of unprecedented monetary stimulus.
Finally, with the price of gold now sitting at roughly $1,200 an ounce, the idea of the metal hitting $2,000 or more has basically vanished. It’s no longer a reasonable possibility in the near, or even distant, future.
So is gold done for good?
Well, I wouldn’t short it here. I think we’ve hit at least a temporary floor at $1,200 or so. But, I also wouldn’t rush to buy it either. The fundamentals have changed. I just don’t see demand spiking anytime soon.
In other words, gold may not be finished as an important asset, but it’s not a compelling buy here either. Leaving it alone may be the best strategy. Or, if you believe $1,200 is a real floor for the metal’s price, short-term put selling may be in order – but that’s certainly not for the faint of heart.
Yours in Profit,
Gordon Lewis
Category: Breaking News
