Why Gold Is the Market's Biggest Loser Today

A week after markets plunged on bullish predictions from Federal Reserve Chairman Ben Bernanke, stocks are cruising higher on positive economic news. The market's day-to-day movements can be a little head scratching at times. It has become abundantly clear that the market's sour reaction to potential reductions in Fed bond-buying was overdone last week, and economic data released this week has eased investors' fears.

Today's economic releases showed a 9,000-person drop in unemployment claims to 346,000 -- very close to the four-week moving average of 345,750 and another sign that the labor market is improving, albeit very slowly. Consumers are also spending enough to keep the economy running: The Department of Commerce revised its April consumer-spending figure from a 0.2% decline to a 0.3%.  

The Fed has also been working to slow down the rise of long-term interest rates, which would have the most detrimental impact on the economy. The 10-year Treasury yield has fallen from 2.55% in early trading to 2.49% -- an indication that the Fed's efforts to pull back on taper talk are working. 

Add all of this up, and investors are once again bullish on stocks and unconcerned about a rapid rise in interest rates, pushing the Dow Jones Industrial Average (DJINDICES: ^DJI  ) 0.86% higher and the S&P 500 (SNPINDEX: ^GSPC  ) 0.68% higher near the end of trading.

But not every sector is having a good day. Gold has dropped again, and SPDR Gold Shares (NYSEMKT: GLD  ) has fallen 1.7%. The ETF is down 33% from its 52-week high, due in large part to the realization that inflation will not take hold in the U.S. and the Fed's money-printing days are nearly over.

Gold bugs have been bidding up the shiny metal on the thesis that the Fed's easy-money policies will both expand the money supply and lead to inflation, leaving gold as the only safe haven. It turns out that inflation hasn't been a problem, and as the Fed starts to stop the printing presses, there's less and less credence in that bullish argument. Thus the price of gold is rapidly declining -- and I don't see it stopping anytime soon.

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  • Report this Comment On June 27, 2013, at 4:19 PM, Hoptopia wrote:

    In other news the Federal govt is now debt free and in no danger of shutting down. How much longer can all these false prophets keep our teetering house of cards standing?

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