Articles
-
Gold will not make a comeback
Commentary: There may be a bounce, but don’t expect a recovery By Jeff Reeves
Gold has been getting hammered the last week or two, pushing below $1,400 and threatening to retest the low mark of $1,322 set intraday in mid-April.
But since gold bounced big off that low — about 12% in just several trading days — some swing traders are starting to wonder if this could be an opportunity to snag a quick double-digit gain on another rebound off the bottom.
Or if you believe Peter Shiff, a rather modest 260% gain from here.
Don’t believe any of it.
Yes, the charts hint the worst may be over in the short term, as gold appears to be making a double bottom. And there remains decent demand from buyers of coins and jewelry — particularly in Asia. But it will take much more than necklaces and conspiracy theories to get gold back to the $1,500 range anytime soon.
The sellers are simply swamping the buyers, and there are no two ways about it.
You see, gold’s meteoric rise a while back was a perfect storm of factors fueling demand:
•Global investors went “risk off” as the financial crisis took hold and gutted the market.
•At home, excessive easing from the Federal Reserve prompted concerns about a devalued dollar and significant inflation.
•Abroad, EU fiscal woes called the viability of Europe’s currency into question.
•Wealthy emerging markets like China and India saw strong physical demand, as well as foreign central banks.
•ETFs like the SPDR Gold Trust GLD +2.02% allowing easy access to this momentum trade.
The result was gold prices tripling in about five years from the low $600s to start 2007 to a peak of around $1,900 in September 2011.
But of all those factors behind gold’s rise, the only one that truly remains is the Asian demand story — demand which, by the way, has been fueled by the recent precipitous drop in gold prices. Bargain hunting is hardly a sign of rabid demand and upside potential, even if it does provide a floor.
While gold bugs and conspiracy theorists will continue to make the evil eye at Ben Bernanke, the Fed/fear/FX trifecta has fallen apart. The dollar is strong and inflation is tame – and oh, by the way, we just got wind that the Fed may be mapping an exit from stimulus efforts in the next year or so.
Here’s the harsh reality about gold right now:
Attractive alternatives : It’s hard for any investor to consider gold a “risk off” investment again after the April rout in prices. And even if you could make that case, why would you choose a defensive strategy with the S&P up 17% year-to-date in 2013? Even if the market does see a mild correction, which some pundits expect it will this spring, many investors (yours truly included) are actually looking forward to it as a buying opportunity.
Strong dollar : Part of the big appeal for gold bugs is the threat of inflation and a weak dollar amid a free-spending federal government and loose central-bank policies. Aside from demand for gold as an alternative currency, a weak dollar also naturally props up dollar-denominated commodities from gold to crude oil to copper.
However, that narrative of a dead dollar just doesn’t hold up in the real world. Inflation as measured by CPI was up just 1.1% in the last year according to April numbers from the Bureau of Labor Statistics. The Wall Street Journal Dollar Index, which tracks the dollar against a basket of currencies, has advanced 7% since the start of the year and almost 10% since mid-September. And with the Fed talking about mapping an exit strategy from QE and nations like Japan devaluing their currencies like nobody’s business … well, let’s just say the dollar isn’t going soft anytime soon.
Read full article
-
Authorized Person for MEX NEPAL
Mob: +977 9856030634 -
Biratnagar Branch Manager
Mob: +977 9852033934 -
Our Clearing Member
-
Our Banking Partners
-
-
-
