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Gold’s Two-Faced Disappointment
With the price of gold again pulling back from its 18-month highs this morning, we start to see more cracks in the bullish $2000 an ounce gold argument. But that shouldn’t surprise. Gold is a two sided, two-faced coin that has very distinct personalities.
On one side, we have the hedge against inflation, a reserve currency and the only grail that gold bugs from around the world will believe in.
On the other, we have gold as a real commodity, used in jewelry, electronics, computers and space components.
But all that glitters isn’t golden, and gold investors can’t have it both ways.
The best question we’ve heard to date has been where will you spend you golden Krugerrands when the world comes to an end? The answer is you won’t be able to spend them, anywhere. And if that’s the case, then gold isn’t the currency that investors would believe it is, but rather a commodity like silver and copper.
As a commodity gold losses much of it’s allure.
Millions of Americans have been adding to their gold stockpiles during this downturn, yet the price hasn’t gone much above $1000 – Or in the case of SPDR Gold Trust (NYSE: GLD) $100. In hindsight, if gold was going to stage an apocalyptic rally, shouldn’t it have come during the meltdown of Bear Stearns and the rest of the financial infrastructure?
That it didn’t, should lead us to question whether gold will go significantly higher in the short term.
In the long-term precious metals like gold still represent sound asset allocation strategy, but in the near present, gold still looks overpriced. And we shouldn’t be too shocked to see gold continue pull back over the next few weeks.
Symbols mentioned in this article: GLD.
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One Response to “Gold’s Two-Faced Disappointment”
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October 10th, 2009 at 1:42 pm
the fact that you don’t date this article about gold’s two-faced disappointment is either supreme negligence, which downgrades your analysis, or is a blatantly dishonest attempt to give your article longer shelf life and to cover the inherent inaccuracies it contains. you say gold will continue its current pullback but of course cover yourselves with the usual talk about short term this or that. as to why the gold price didn’t skyrocket during the meltdown – it actually got dragged down. the well known fact is that with all the worthless paper being redeemed the wall street hustlers were forced to deleverage by selling gold.
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