Yet another failed attempt. Stocks rose today, but the S&P 500 (SNPINDEX:^GSPC) failed once more to break its October 2007 all-time (nominal) high of 1,565.15. Incredibly, this marks the fourth day running that the index has closed within 1% of this level. Meanwhile, its narrower, price-weighted cousin, the Dow Jones Industrial Average (DJINDICES:^DJI), has now risen every day in March, for a nine-day winning streak. This is the longest streak since November 1996! In the process, it has managed to set seven consecutive record highs. For my take on the possible interpretation of these streaks, let me refer you to my column from Monday.
Consistent with rising stock prices, the VIX (VOLATILITYINDICES:^VIX), Wall Street's fear gauge, declined 3.6% today, to close below 11.56. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 20 days.)
Gold loses its luster
Which is the worst-performing asset class this year? (Hint: It's the only one that has ornamental value.) Still can't find it? In that case, check out the following chart, courtesy of JPMorgan Chase:
It's been roughly 18 months since gold set its (nominal) all-time high of $1,920 per ounce in September 2011. Since then, it's been a difficult ride for gold, as macroeconomic fears have subsided (albeit in fits and starts) and the inflation bogeyman has yet to show its face. The result: Gold has lost nearly a fifth of its value in dollar terms -- or, rather, the dollar has appreciated by a fifth in terms of gold, to satisfy strict gold-bug nomenclature.
I'm ready to make a long-range prediction regarding gold: Its price will not exceed $2,000 this side of the 2010s. This is not simply a case of kicking an asset when it's down -- I've been ruminating this thought for some time, but this is the first time I'm publishing the call. I justify it on three main axes:
The base case for inflation in the U.S. and other advanced economies is muted to mildly above-average inflation -- not debilitating inflation, let alone hyperinflation.
The fiscal situation of the United States is currently less serious than gold bugs are willing to believe. It's true the current path is unsustainable over the long term, but it is also true that this path can be redressed. The base case is that this will occur, with some painful, but tolerable, adjustments.
The base case for the European sovereign debt crisis is a muddle-through.
Another scenario is certainly imaginable, but I am reasoning here on base-case probabilities, and I am quite comfortable with my prediction. Shareholders in the SPDR Gold Shares (NYSEMKT:GLD) and the iShares Silver Trust (NYSEMKT:SLV) would do well to establish (if they have not already done so) and continually revisit their base-case scenario.