Is gold losing it’s lustre? We’re looking at what’s behind the recent fall in bullion prices and whether it’s time for investors to offload their bullion holdings.
The headlines for gold prices over the past weeks have been decidedly negative.
Today, The Telegraph newspaper even features a photo of The Queen looking most concerned. Quite possibly checking her personal bullion vault in the basement of Buckingham Palace… Gold prices tumble to four-month low but the worst could be yet to come.
The stock market’s roaring, Bitcoin has gone into hyperdrive and gold continues its slump into the doldrums.
Is it time for bullion investors to sell?
Are bullion investors all making a huge wealth eroding mistake?
They might well be, after all The Telegraph goes on to write:-
There’s the proof, we’ve missed the boat!
Its worst weekly performance since July came as cryptocurrency Bitcoin – which has been touted as an alternative safe haven to gold – surged over 20pc, smashing through the $16,000 per Bitcoin milestone.
Bitcoin is the alternative safe haven to gold, how did we miss that?
What’s more, Bitcoin is a safe haven currency like no other. The BBC reports Bitcoin has risen by 70% this week, breaching $17000 before sliding back to to $15,300.
Actually, that report is one hour old, which by Bitcoin standards is very old news.
I’ve just checked at Coindesk, Bitcoin at the point of writing this post one hour later than the BBC is $14,494.00, just about another $1000 down and 14% down on the day.
It should end the day somewhere between $10-20,000 unless something unexpected happens.
It seems to me that considering Bitcoin as an alternative safe haven to Gold is a bit like considering Nitroglycerin to be a good alternative drain cleaner. That stuff goes up fast and you sure won’t have a blocked drain after just one application.
In one word – Fear!
So what has really gone wrong for gold?
Not fear that gold is going to collapse and become some form of worthless yellow junk that’s far too bendy and heavy to make anything half decent from.
Good old fear of missing out.
Right now there’re a lot of distractions that no one wants to miss out on.
With Bitcoin in the lead, who wouldn’t want to jump on that money making juggernaut? What could possibly go wrong?
The real elephant in the room is the US Federal Reserve with an almost certain rate rise on the cards.
David Govett, head of precious metals trading at Marex Spectron in London told Bloomberg on Thursday:-
He also pointed out that Bullion is in fact heading for its first back to back annual advance since 2012.
“The rate hike is now looming and people are suddenly realising that gold may not be the most attractive long position at the moment,”
Gains from higher rates are outweighing current geopolitical risks, including war on the Korean peninsular and the third intifada in Israel.
Risk-on risk-off is an investment setting in which price behaviour responds to and is driven by changes in investor risk tolerance.
“People’s memories are short and their pockets not so deep,” Govett said.
Risk On Risk Off
Gold prices are defiantly caught in a Risk On cycle, with almost scant risk aversion in the marketplace, gold sellers are feeling emboldened.
It’s going to be a tough period for gold, but not tough enough for investors who use gold as their safe haven investment to start to worry just yet.