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That gold has plummeted in value is no surprise. All investing mania go too far, and the decade-long bull market in the precious metal is no exception. But the developing consensus that gold is heading toward extinction as an investment class is both surprising and misguided.
“Gold is doomed” is the headline for Matt O’Brien’s recent Washington Post examination of why its price has fallen 42 per cent since its most recent peak, in 2011, and experienced a stunning drop of 8 per cent in June alone. Gold closed last week at $1,085 (U.S.), down from its 2011 peak of $1,895 (U.S.).
“Gold is out of fashion like flared trousers: no one wants it,” Robin Bhar, a London-based analyst at Société Générale S.A., France’s third-largest bank, told Bloomberg News last week.
Iain Stewart, who runs the Newton Real Return fund in the U.K., is highly regarded for his fund’s superior results, managing clients’ money with a cautious strategy that emphasizes preserving capital over high-risk, high-return bets.
Just the same, Stewart conceded in a recent U.K. Daily Telegraph interview that the small portion of his fund committed to gold has “been the worst investment in my 30-year career.”
To be sure, as Toronto-based mining giant Barrick Gold Corp. prepares to announce its second-quarter earnings Wednesday, its principal product belongs in the investor doghouse.
The yellow metal has been humbled along with other commodities — most conspicuously oil and gas, but also sugar and copper and other base and precious metals — as the climb of commodity prices ended with the halt of China’s infrastructure building boom two years ago. Not coincidentally, that’s when the gold price broke out of its upward trajectory.
Beijing’s wise pre-empting of an economic overheat ended the latest “super-cycle” in commodity prices, with help from the continuing European financial crisis and a chronically slow-growth Japanese economy.
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