Gold has varied uses but from a markets perspective, the primary place in investors’ and traders’ portfolios is a hedge against inflation and a hedge against uncertainty.
When either – or both – of these increase, the gold price should rally. The GFC was the very type of uncertainty breeding catalyst that pushed gold to a high of $1,920 back in 2011.
But with the absence of global inflation – in fact, outright deflation in much of Europe – and with a disconnect between gold and its uncertainty hedge characteristics, something curious has been happening recently. Gold has, well, lost its lustre.
During the stock market funk of October, the best price gold could claim was $1,253 and as stocks have rallied, it is now down at $1172.
That is the lowest weekly close since October 2007 and a break of the range low from the sell-off which began in 2012 and now looks like it has much further to fall.
A pure technical target for the Fibonacci traders is $897 an ounce over the very long-term but closer at hand the weak weekly close, if not reversed very soon, suggests a move to the bottom of the 3-year down channel at $1,016 an ounce.
Either way, it looks like gold could be in the midst of one of global financial market’s great bubble pops. That’s not good news for gold miners on the ASX and elsewhere.