Is Gold About to Make a Comeback?
The gold market continues to disappoint investors as the price of gold continues to trade down. Moreover, the leading gold ETF SPDR Gold Trust (ETF) (NYSEMKT:GLD) hasn’t been performing well and since the beginning of the year the ETF lost more than 10.8% of its gold holdings on account of the decline in demand for gold as an investment. The ETF’s price fell by 4.8% during the year to reach $152.81. This decline serves as an indicator for the drop in demand for gold as an investment. The launch of QE3, in which the Fed purchases each month $85 billion worth of long term securities, haven’t pull up the price of gold. People are still worried that US dollar will lose its value.
A recent article claims that several States in the U.S are moving towards gold as a legal tender. If these steps will be implemented (if these States will be able to bypass the legal issues involved) the price of gold might eventually resume its rally. If the U.S economy will pull back – the recent U.S employment report raised the concerns regarding the progress of the U.S economy – the price of gold might rally. In the meantime, the U.S dollar remains strong against leading currencies such as the Japanese yen and Euro. The decision of Bank of Japan to augment its asset purchase program is making the Fed’s asset program look conservative. The situation in Europe including the recent debt crisis in Cyprus is keeping the Euro weak. These events are likely to keep the U.S dollar from tumbling down in the near future. If the USD will remain robust, the chances of gold price rising become less likely.
The Bottom Line
I still think the gold market isn’t likely to make a comeback. This is likely to keep pulling down shares of these gold producers. Even if these companies will raise their production level, their profit margin will continue to dwindle, which will pull back investors from these stocks.
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Lior Cohen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.