Goldman Sachs Group, Inc. (GS), Barrick Gold Corporation (USA) (ABX), and How The World’s Top Bank Tells Investors to Shun Gold

Spikes lower are actually a hallmark of commodities. Prices usually trend gradually higher, or even sideways, but when moves lower happen, they tend to be violent and expensive. This is one of the reasons so much risk is often associated with commodities trades — the move lower can occur before you have a chance to get out. Owning shares of ETFs such as the SPDR Gold Trust (ETF) (NYSEMKT:GLD) can mitigate some of this risk, but large speculative positions in GLD may have contributed to gold’s run, making the relative protection of the ETF somewhat diminished.

Is there safety in miners?
For an extended period, gold miners such as Barrick Gold Corporation (USA) (NYSE:ABX) have underperformed the pure commodity play. Over the past year, Barrick Gold Corporation (USA) (NYSE:ABX) is down more than 40%, while SPDR Gold Trust (ETF) (NYSEMKT:GLD) is down about 7%. Over the long term, you would expect this relationship to normalize, meaning miners should outperform at some point. When this happens, however, there’s no guarantee that either investment will be headed higher — the miners may simply fall by less. The potential inflection point that gold presents might be a catalyst for a reversal for the miners, but that remains speculative. Until a shift is apparent, the miners provide no more safety than gold itself.

GLD data by YCharts.

Ultimately, gold looks weak, and Goldman’s added negative pressure is unlikely to help. Even if you prefer to maintain an allocation, reducing it would seem appropriate.

The article The World’s Top Bank Tells Investors to Shun Gold originally appeared on Fool.com is written by Doug Ehrman.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs.

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