30th June 2014
Adrian Ash, head of the research at gold dealer BullionVault, looks at how the shine has come off the precious metal…
Want to blame Iraq or Ukraine for gold’s recent rise? It might be less ghoulish, and longer-lived than that. The consensus is finally pointing the other way, suggesting some kind of capitulation in sentiment at last.
Most clearly this new low for gold’s investment appeal is flagged by a detailed, thoughtful article from Bloomberg. It says gold investors are now “heartbroken” by the metal’s three-year drop. So hurt, in fact, they won’t ever come back.
Proof? Gold ETF holdings this month fell to new 2009 lows. US gold coin sales have dropped 60% so far in 2014 from the same period last year. Analysts are bearish everywhere except the amateur internet.
Google searches to “buy gold”, we’d add, have also dropped off a cliff. And with stockmarkets knocking on or above all-time highs, who can blame Western investors – or households around the world in fact – for getting over gold at last?
Certainly not money-manager and columnist Barry Ritholtz. You can “kiss the gold bull market goodbye” according to him and his sub-editors because “all of the factors that led to the huge rally in gold from 2001-2011 are no longer present.” Factors such as fear of inflation (not here, never will be) or a stockmarket crash (remember those? Thought not) just don’t apply.
Hence the “golden years are gone” says Motley Fool UK, going on to call gold “a store of risk, not wealth.” It gives the sad example of an elderly couple who sold their home, put £100,000 of the cash into gold ($150,000 at the time), and are now down 20%. At current prices, that suggests they bought either spring 2013 or midsummer 2011. So hindsight says they should have bought shares (if you’re interested, down 20% from three years before 8.2% of the time since 1975) or just stuck with housing (likewise according to the Nationwide’s inflation-adjusted HPI). Stocks and bricks are plainly better than gold – down 20% or worse from three years before 7% of the time since 1968 – because, according to the Fool, gold “is the riskiest investment”.
And there is more because gold isn’t even an investment says Kiplingers. No, it’s merely a commodity, and so “I loathe gold,” says columnist James Glassman. Sure, gold goes up sometimes (times like every year from 2001 to 2012 perhaps?). “But over the long term, I’d rather have my money in stocks, which put the brilliance and the imagination of the human mind on my side…” (and which tend to fall when gold rises, pitting that ingenuity against a lump of metal that does so little, it doesn’t even rust).
So we’re really motoring now with anti-gold sentiment. Because louder than his consistent anti-commodities jibes, Glassman is most famous for co-writing Dow 36,000 – “perhaps the most spectacularly wrong investing book ever” (copyright, the Washington Post) – just as the Tech Stock bubble was about to become the everything crash at the turn of the century. That 1999 pratfall was so unfunny for equity bulls, anyone reading Glassman’s gold loathing today might feel 15 years younger and start planning a Y2K party. Only this time, you’ll know trouble lies ahead.
Away from the talking heads and columnists, bank analysts have also been bearish on gold right down to their socks. Technical analysts, noting the upturn in gold’s short-term picture, can’t get past advising clients to fade rallies and look for lower prices ahead. Fundamental analysts weighing supply against demand point either to the return of ETF selling by Western funds, or the missing millions of Chinese buyers who’ve now taken net imports to the world’s No.1 consumer nation more than 20% lower for three months running.
Thing is, those commentators dismissing gold as “speculative” and driven solely by emotion are right. The above-ground stockpile of gold is so large – equal to 40 years of global demand – that mining or buying one more ounce changes little. Prices rise when buyers pay more and sellers ask higher. Gold falls when jewellery consumers become the marginal buyer, and existing owners accept whatever they can.
What flicks that switch is sentiment, whether towards gold or away from other, more typically “productive” assets. Behind that sentiment may sit many different financial or economic back-drops, chief among them the direction of real interest rates. But since gold’s utility is always and only social – whether for adornment, monetary exchange, or trying to defend or grow spending power – then human emotions really do drive. And right now, the major-league pundits feel more down on gold than any time in the last decade.
Columns advising against gold have reached a crescendo this month, far louder even than when prices bottomed a year ago, in June 2013. Capitulation on gold was lacking at last year’s 3-year lows. Might this be it for sentiment, a near-universal rejection?