I haven’t yet commented upon the newest iteration of the gold crash. Down 5% or so now from its recent peak:
I was never convinced by the rally given the clear and present danger represented in the Fed and that’s what’s undone it. From the AFR:
Goldman Sachs Group and Societe General can thank Janet Yellen for helping to get their bearish forecasts for gold back on track.
After hedge funds piled into the precious metal this year with the most bullish bets in 16 months, defying the predictions of lower prices by Goldman and SocGen, gold tumbled last week by the most since November as Yellen, chair of the Federal Reserve, said economic stimulus could end this year, with interest rates starting to rise in early 2015.
…“The sentiment probably had gotten a little ahead of itself,” said Ted Harper, who helps manage more than $US9 billion ($9.9 billion) at Frost Investment Advisors in Houston. “Gold is going to be somewhat problematic from an investment standpoint over the next six to 12 months. We’re probably looking to a relatively higher and quicker increase on rates, which is a headwind for precious metals.”
“We continue to believe that the economic momentum in the US shows further improvement,” said Michael Haigh, the New York-based head of commodities research at SocGen who correctly predicted the 2013 bullion rout. “We reiterate our very bearish outlook for this year. Prices could drop below $US1,000. I would not rule that out.”
Neither would I, and I wouldn’t buy it then either. Remember, above all else, gold is a play on the dominant reserve currency and, by extension, its monetary and fiscal underpinnings.
When the next bust arrives, some time in the next two years is my guess, gold will get get crushed as the safe haven play returns to US dollars. That’s when it will be time to buy gold. Some are still holding for other reasons:
“We have gold as an inflation hedge,” said Adam Strauss, Chicago-based co-manager of the $US300 million Appleseed Fund at Pekin Singer Strauss Asset Management. “Some of the inflation forces have dissipated significantly over the last 12 months. That has not changed at all our long-term outlook.”
But my major reason for retaining an interest in gold is deflation. When the next bust happens, and QE returns in greater form (oh yeh!), gold will once again glitter.
