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Gold in 2012 is set to underperform the US stock
market for the first time since 2004...
SO the WORLD DIDN'T END on
the shortest day of 2012, as forecast by no-one beyond lazy journalists and
internet frauds.
But the long bull market gold has choked its last. Or so some soothsayers
claim.
Bloomberg: "Gold,
[enjoying] its longest winning streak in at least nine decades, is poised to
enter a bear market..."
Interactive Investor:
"Is gold's bull market over? Market commentators [are] citing a
tumultuous economic environment. Others say it has simply been over-bought,
and as with each bull market, inevitably reach[ed]
a point of resistance..."
MarketWatch: "Gold bugs are finally throwing in the towel.
Over the last two weeks [they] have become even more discouraged than they
were at the end of November. And that’s saying something..."
Okay, we were kidding. These 3 stories in fact came at the end of 2011. But
with the big top of summer last year now a distant memory, and with prices
this week unwinding all of 2012's gains for Euro and Sterling investors, you
could book your path to the US Treasury, running Italy, or getting a $400,000 annual housing allowance
from the Bank of England by saying gold is spent today.
"Goldman Sachs...are among those calling the
end of the gold bull market," reports Portfolio Adviser, "having
recently trimmed their 2013 forecasts to $1800/oz."
Whatever the reality ahead, gold has certainly done an odd thing in 2012. Odd
for the last 13 years at least. Because it failed to beat the US stock
market's annual gain – the first such failing since 2004, and only the
third time since 1999.
What to make of this underperformance? Well, if you missed all of that 14.8%
capital gain in the S&P500, then a measly 7.9% return on your gold might
be scant comfort. But it does continue a broader trend, dating back a whole
decade.
Gold and the stock market both rose together this year. Only twice has that
failed in the last decade, once when stocks sank (2008), and once when they
were flat (2011).
What gives? Isn't gold supposed to rise when stock markets plunge, and vice
versa? But really, that's such a 20th century idea!
Go back 20 years, and flip the price of gold upside down. As US stocks rose,
the gold price fell, all through the mid-to-late '90s. It wasn't early 2001
that gold found its floor – shown as the second peak on our inverted
chart.
And from there, the Tech Stock Crash came right alongside the start of gold's
now 12-year rise...a rise which stocks joined again just as soon as near-zero
interest rates were applied in 2003.
Yes, the common link we believe has been cheap money. On the one hand it has
driven investors back into stocks (and back again thanks to truly free cash
and quantitative easing since 2009). On the other, it has driven a small but
growing band of people worldwide to abandon a chunk of their cash, swapping
it for a lump of metal instead. And overall, gold has outperformed by not
sinking in the middle.
Scarce and incorruptible, unlike common stock, gold has thus acted as a great
hedge for stock market bulls, rising both with and despite the action in
equities. But being rare and indestructible, gold has yet to find its true
calling in the early 21st century we predict, squinting into the future just
like ancient Mayans didn't.
We think gold looks good insurance against that other all-rising bull market,
the all-inflating credit bubble that is the 32-year non-stop bull market in
US and other Western government bonds.
Adrian Ash
Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver
market for private investors online, where you can buy gold and silver
vaulted in Zurich on just 0.5% dealing fees.
(c) BullionVault 2012
Please
Note: This article is
to inform your thinking, not lead it. Only you can decide the best place for
your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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