They say timing the market is impossible, but timing a feature on the outlook for gold the week in which it fell through the $1,200 mark, well, that takes skill.
Negative headlines about the prospects for the yellow metal abounded last week. Indeed even before it was announced that by falling to $1,191.21 on 28 June the price of gold had dropped to its lowest level since August 2010, ETF Securities was reporting a 12th straight week of outflows for physical gold exchange traded products. Over those 12 weeks total redemptions totalled $1.99bn.
According to Reuters, gold fell some 25 per cent between April and June, the biggest quarterly loss since the agency started tracking prices in 1968. Last week’s losses were attributed to investor fears sparked by Ben Bernanke’s confirmation that the Fed would consider scaling back the pace of its $85bn-a-month bond-buying programme in the latter half of this year, if the US economy continues to strengthen. This is a sentence you will read a number of times in this week’s issue of Fund Strategy, in various guises, as it seems to have spooked pretty much every type of investor.
Away from gold for a second, the Fed chairman’s statement introduces a paradox when it comes to the US economy. Often in the past year or so the US has been held up as the one bright spot among global economies. However, now every bit of good news seems to be reacted to badly by the market as it is viewed as increasing the possibility of the tapering of quantitative easing.
Anyway, back to gold. This week’s cover story by Vanessa Drucker focuses on what happened during April, which saw bigger falls than last week in price terms. Indeed, between Friday 12 April and Monday 15 April, Drucker notes, more bullion was sold than the gold-mining industry produces in one year.
However, rather than being bearish on the prospects for the commodity, several experts Drucker has talked to remain optimistic and argue that the case for holding the asset class as a diversifier in a portfolio remains as solid today as ever.
So, an asset in meltdown or a buying opportunity? One thing that history tells us is that if gold does continue to drop, the prospects for equities look attractive, while, conversely, if the metal picks up pace, stockmarket investors know to tread warily. Got to love these paradoxes.