Has Gold Lost Its Luster?

The price of gold has been in a downtrend since October with a significant amount of volatility occurring in April as the price of the metal fell -13% in just two trading days on April 12 and April 15. If you own gold, you are probably concerned, so we wanted to provide you with our latest thinking on the metal.

Gold has been in a bull market since early 2001 and has produced 12 consecutive years of gains and a 15.5% annualized return during that period. So given that tremendous run, it’s not surprising to see a correction. Frankly, we’re surprised it didn’t happen sooner. The good news is that gold seems to be establishing a bottom around $1,350/oz., a level it has already successfully retested. Our expectation is that this level holds and the price of gold begins to slowly recover. The current data and statistics show that while the gold ETFs are experiencing significant outflows, physical gold is in high demand, trading at a premium, and proving difficult to obtain. This suggests that short-term traders who typically utilize ETFs are giving up on gold while long-term investors who often want to own the metal in physical form are still buying. This is a positive development for the start of another long-term uptrend.

We also think it’s important that you review the reasons behind your desire to own gold. If it’s to make lots of money via a 15% annualized return, you’ll probably be disappointed. While we see the uptrend in gold resuming, we sincerely doubt it will be as strong as the last 12 years; gains are likely to be much more modest going forward. However, if you own gold as an alternative currency—one that has been accepted throughout human history by various societies and cultures all over the world—you own it for the right reasons and should continue to hold through this period of weakness as central banks around the world are in a race to see who can devalue their currencies the quickest to stimulate their respective economies.

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