No doubt about which chart looks the most interesting at the start of this week and that’s gold. Leaving aside the reasons for this latest push lower, it has brought to an end the more recent period of consolidation for the dollar-based gold price that had given some hope for the bulls that the worst was over.
More nonsense is written about gold than nearly any other commodity. Because it strays into the realm of portfolio allocation, is non-yielding and is of limited industrial or commercial use, there is very little basis for valuing it. So this gives free rein to various talking heads to say pretty much whatever they want, which usually involves it going up. I remember attending a presentation in 2013 given by a technical analyst. His biggest call was long gold and he went on to say that more than 90% of his UK pension (having worked here for several years) was in gold. It’s like gold is an excuse to take leave of all the basics of investment and portfolio allocation. As well as losing 20% on gold, this guy has also lost out on the c. 30% rally in European equities and 15% (total return index) in European sovereign bonds.
I wrote a lot about gold a couple of years ago, when we were in one of these periods of losing all rationalisation (for example, see “Good times over for gold“). I still think we are in a bear market, largely because a rising US currency and rising real interest rates is a backdrop against which gold will struggle, even after the losses of recent years. These simple facts will continue to dominate any other irrational arguments.