The Price Of Gold Is Dropping Like A Brick – by Mark Williams (WBUR Boston NPR – August 6, 2013)

Watch out for that shiny pendulum because it’s swinging back fast. Investors are chasing stocks and real estate and fleeing gold. The two former asset classes have experienced solid returns since 2012 while gold has suffered double-digit declines.

Large cracks in the “go-long-gold” strategy are evident. Economic weaknesses in Europe remain but no financial Armageddon has emerged. Keynesian economics remain the drug of choice, Japan being the latest user, yet inflation is non-existent. The strength of the dollar and the increased willingness of the Fed to taper quantitative easing undermine higher gold prices. Investor support is crumbling and gold bugs, those believing it is a stable investment, should be nervous.

Since the historic highs of 2011, gold has dropped by over 30 percent. In 2013 alone, investors have begun to give back several years of gains. Recent paper losses for hedge funder John Paulson have topped $1 billion. In just the last six months, gold has dropped by 22 percent, the worst fall since modern trading commenced in early 1970s. Gold is locked in a bear strangle and prices have plenty of room to fall still further.

It has taken over a decade but the bubble has finally been pricked. The pin that popped this most recent asset swelling is not complicated. It’s a stock market that has reached new highs, falling unemployment and rebounding investor confidence in central banking policy. In the last year, gold investors have lost over 18 percent while those in S&P 500 stocks have enjoyed a 23 percent return.

Real estate in the largest U.S. cities has also climbed 10 percent or more since last year and historically low interest rates are forcing investors to find new places for capital. Even junk bonds are back in vogue. Investors are starting to ask the right question: Why lose money on gold when you can gain big on stocks, real estate or new alternative investments?

Other commodities also point to a bust in gold. Silver, the poor man’s gold, has dropped in the last six months by 37 percent. Platinum, a metal that is 15 times scarcer than gold, up to recently, sold at a steep discount to gold. Today, platinum trading at $1,450 per ounce is moving back towards to its historical premium — another powerful sign that lower gold is in the offing.

Caveat emptor: The last gold bust was not kind to investors. From 1980 to 2000, investing in gold was dead money. When that bubble burst in 1980, gold plummeted by 60 percent in less than a year.

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