From the Pascometer today:
Gold in US dollars is back to where it was in 2010 – and of course paying no interest or dividends to those who held it over that time.
Gold’s latest bubble peaked in August 2011, with this year particularly unkind to it, down 28 per cent in greenbacks, but only 16 per cent in Australian dollars as the Aussie has come off.
The problem for the true believers still clinging to the yellow metal is how much lower it will fall as the exchange traded funds continue to dishoard and physical demand is affected by deflation – the suspicion that gold will be cheaper to buy in the future and therefore, there being little reason to buy it today.
Standard Bank’s commodities analysts warned last week that physical demand in Asia was muted and would not absorb the ETF sales.
It has always been a bubble that was going to pop, just a matter of when and from what height. And you know that old phrase “I don’t like to say I told you so”? Well it’s true. Everyone loves to say I told you so. I told you so.
And this is what Standard Bank’s Walter de Wet (not a gold sceptic by any means) wrote last Friday:
Over the past few weeks we have indicated that the gold physical demand response from Asia has been quite muted given the price decline. In especially June and July, when gold was also trading at current price levels (around $1,220), physical demand was very strong. This is not the case right now.
In addition to the muted demand response, we are also now witnessing a more price sensitive demand response at the current low levels, i.e., when the gold price rallies even from the current low levels, physical demand from Asia, and China in particular, seem to fall away quite quickly.
One of the worst performers on the ASX200 this year, by the way, is Australia’s biggest goldminer, Newcrest, down a whopping 68 per cent at $7.10 since the beginning of 2013.
A nice way to finish off the year with another poorly argued piece of reverse contrarianism.
I’m not going argue that gold is a good buy yet. I see it lower too. But one thing you can be certain of is that as long as deflation stalks the global economy, gold will be in demand. That is because gold is a play on US monetary instability, both inflationary and deflationary.
Ask yourself, why is it falling now? Monetary policy is being tightened in the US because the Fed is assuming it will have enough inflation next year via its forecast recovery. If it falters and inflation falls, QE will resume and the gold price rise. If the US recovery is for real and interest rates normalise then gold will keep falling.
Gold is not a figment of some dark market imagination. It is simply the undollar. And when its turn comes, it will be the unyuan as well. No mystery.
