I wrote an article way back in March 2013 about how fear was one of if not the main pillar supporting the price of gold. I also wrote an article detailing all the “pillars” supporting gold and why I don’t own gold. To me gold is a rather simple trade to understand. Fear and lack of alternatives have driven gold to never before reached levels, but as fear subsides and interest rates increase, gold loses its main “pillars” of support. I find the “buy gold because of inflation” totally unconvincing in these economic conditions. If people are buying gold as a hedge against inflation, they will have a long wait, and gold will reach a bottom far below where it is today before a new uptrend develops discounting the real actuality of inflation. Buying gold in anticipation of inflation requires having the right expectations, and expecting inflation in the near or intermediate term is simply relying on a very outdated and erroneous economic forecasting model. I’ve found no objective market based indicator that shows any sign of inflation or even the fear of inflation…besides gold. The gold market is in total contradiction of the bond market, and I trust the bond market a whole lot more than I trust the gold market.
Those views, while unpopular with some/many, seem to be catching on in the financial press. Just today, 08/09/2013, The headline reads “The Gold Fear Trade Is Dead.” In the linked video Damon Vickers, president of Damon Vickers and Co., tells The Street’s Joe Deaux that “the gold fear trade is dead.” What I like about the video is that he names names of his favorite gold cheerleaders, highlighting just how wrong they have been. Investors should take note of the list because investing is about making money and risk management, not blindly following charismatic personalities. I still hear all the time about how Peter Schiff called the mortgage bubble. That may be true, but so did I and a whole lot of other people, but that has nothing to do with what is happening in the gold market. Even broken clocks are correct twice a day, and Peter Schiff has been dead wrong on gold since is peaked 2 years ago.
In the above linked video Damon Vickers also make a few other comments that support many of the views I’ve expressed in many articles that signal a lower price for gold:
1) The “Fear trade is dead.”
2) Equities are breaking out on the upside providing a better investment alternative than gold. My favorite way to express this concept it thatgun manufacturers have greatly outperformed gold during a time when gold should have dominated all other investments according to the gold bugs.
3) The bias continues to be down for gold.
4) Gold in “not a trade to be in, you can be in it from the short side.”
5) Sell gold “into strength, the trend is down.”
Another video out today highlights how “uncertainty” is also subsiding, which should be another nail in the coffin of the gold bull market. The better things look for the economy and the future, the worse things will get for gold. Good news is bad news for gold.
Stocks and ETFs that this lack of fear and uncertainty should impact:
- SPDR Gold Trust (GLD)
- iShares Gold Trust (IAU)
- iShares Silver Trust (SLV)
- Randgold Resource (GOLD)
- AngloGold Ashanti (AU
- IAMGOLD Corp (IAG)
- Asanko Gold Inc (AKG)
- AUREUS (ARSMF)
- Gold Fields Limited (GFI)
In conclusion, one of the main pillars supporting gold, the fear trade, is “dead.” I’ve been saying that for a long time, but now it is making the headlines. The further and further we get from 2008, the more and more evidence accumulates proving just how wrong the anti-Fed, doom and gloom, end of the world, collapse of the US dollar, hyperinflation is coming, sound money, gold is currency, gold bug crowd has been. With both uncertainty and fear subsiding, the path of least resistance for gold is down.
Disclaimer: This article is not an investment recommendation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.