Nothing is going right for gold. Many of the factors that drove gold to a record high seven years ago, including a frightening environment for stocks, a precarious U.S. dollar and fears over runaway inflation have reversed course and are now working against it.
This week, gold futures slid to their lowest level in 18 months. Since peaking at just less than US$1,900 in late 2011, gold has lost 37 per cent of its value. Since April alone, it’s down 12 per cent. An ounce of gold sold for about US$1,190 late on Friday.
Much of the weakness is due to the strengthening U.S. dollar, a lack of investment demand, the loss of its appeal as a safe haven investment and the rise of alternative currencies such as bitcoin.
But other intangibles are at work. Once considered a stalwart, even necessary part of anyone’s portfolio, gold has become passé in a sea of investment options. For younger investors, gold is simply uncool.
The ramifications of a weakening gold price go well beyond investors with exposure to gold bars or gold-backed exchange-traded funds. Miners, many of whom have spent the best part of the past decade cleaning up their balance sheets, are now facing another great test. The falling bullion price is putting pressure on cash flow.