Gold Is Finished -- Get Over It

After notching up a positive return yesterday, stocks are starting off on the same track this morning, with the S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 0.69% and 0.81%, respectively, at 10:05 a.m. EDT.

Confirmed: The bull market in gold ended nearly two years ago
Gold lost 3.3% yesterday; with two trading days left in the month, that puts the yellow metal on track to record its worst quarterly performance since it began floating against the dollar in 1971 (as of Wednesday's close, the quarter-to-date loss stands at nearly 23%).

If you own a position in gold via the SPDR Gold Shares (NYSEMKT: GLD  ) or if you own physical bullion, it's time to recognize that gold's bull market ended in September 2011, when gold peaked just above $1,900 per share. Obviously, this may be difficult to swallow if you decided to take a flyer on this unproductive asset and are now sitting on an unrealized loss. However, refusing to acknowledge it will only raise the odds that your loss will ultimately increase.

Can the price of gold go lower yet? It can, and the odds are excellent that it will. Consider the following data, for example: According to investment bank Barclays Capital, outflows from gold ETFs (funds and products) total 490 tons year to date. Citigroup's figure is roughly the same. These sales have been responsible for gold's horrible chart this year. Meanwhile, Barclays also estimates that 288 tons still in investors' hands were acquired at a cost exceeding $1,300 per ounce -- in other words, those positions are now in the red. If some of these investors decide to cut their losses, expect further price declines.

There are scenarios under which I could imagine a resurgence of the price of gold, but as the U.S. economy continues to heal -- to name but one countervailing factor -- the probability that they will come to pass has shrunk to the point where investors will no longer pay much of a premium to insure against them. Conversely, as real yields increase, the opportunity cost of holding a zero-yield asset increases. This is not a positive environment for gold, which nonetheless remains overpriced.

If you own gold, take the measure of the changing facts in order to change your mind. If you don't own gold, whatever you do, don't fall for the siren song of charlatans and broken clocks like Peter Schiff telling you that recent declines are a buying opportunity.


Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On June 27, 2013, at 10:28 AM, rhealth wrote:

    Of course it's on a downward trend, it's nearing the bottom of it's multi year cycle. I am bookmarking this article to throw in your face in one month (or admit how wrong i was) but I think you will be eating your words. hope they are tasty.

  • Report this Comment On June 27, 2013, at 10:43 AM, mavos wrote:

    When the stock market started to move upwards the Hedge Funds sold their positions in Gold. This set Gold on a downward spiral as other contributing factors came into play such as tarp tapering.

    I don't think Gold will go much lower and I don't think the stock market can go much higher.

    Once the automatic selling on trailing stop losses is over and once the market realizes that tapering is really not a reality Gold will move upwards. When it does it will do so with great voracity and show that even the Fibonacci mathematical rules do not apply.

    As a final note, the extraction cost per ounce of Gold is now higher than the selling price. What do you think happens next?

  • Report this Comment On June 27, 2013, at 12:37 PM, Hoptopia wrote:

    Seems like Fool writers are focused on short term market conditions.. I've got Gold and ahem Silver in my portfolio for the long term. In the chaotic overpopulated under-resourced world we live in these commodities will last the test of time.

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