Gold has been getting hammered lately, and it’s down again today.
PIMCO’s Mohamed El-Erian discusses it in an FT piece titled We Should Listen To What Gold Is Really Telling Us.
El-Erian’s argument is that essentially gold had a brand and it had a story, and that story was that it would inevitably go up, as central banks stimulated more.
But it doesn’t take much to change the brand and tell a new story.
While lower inflationary expectations and surging equities played a role, the real catalyst for the dramatic price drop was a rumour that Cyprus could be forced to sell its holdings by its European partners. This involved a tiny amount of gold (valued at less than $1bn at the time), but it made investors suddenly pay attention to the possibility of significant supply hitting the markets from other European economies (particularly Italy with holdings of some $130bn).
This simple change was enough to bring the gold price down 15 per cent in less than a week. Since then, the metal has struggled to re-establish a firm footing, (it is currently trading at about $1,345 a troy ounce).
El-Erian then goes onto liken this to Apple. One moment it’s on top of the world, and infallible. And then suddenly the story changes, and people value the company in a completely different way.