Why Gold Prices Are Down Right Now

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Gold prices are the honey badger of precious metals right now.

As 2011's very popular YouTube video showed us, the honey badger makes moves that don't make sense – it "don't care."

And neither does gold.

Like the honey badger, gold prices just don't seem to care that the world has teetered on the brink of destruction all year. They just keep heading lower.

Gold prices have been trending down for most of this year. On Jan. 2, the London spot price was $1,693.75 per ounce. As of this writing, the last bid was $1,286.88, a loss of 24%.

In the meantime, the civil war in Syria escalated, at times threatening to engulf the Middle East in flames. The U.S. government shut down for two weeks, threatening countless visits to National Parks. The world seems to have moved from crisis to crisis without pausing for breath.

And there's been inflation. The American Institute for Economic Research's (AIER) Everyday Prices Index (EPI), a measure of inflation tied to prices of consumer staples, shows a 2.5% increase since January, more than double the Consumer Price Index's 1.1%.

Furthermore, the U.S. Federal Reserve's lead foot on quantitative easing keeps the possibility of a global currency crisis on the table.

Crisis and inflation historically drive gold prices up. That's one of the reasons we here at Money Morning still think gold is an essential piece of any portfolio. We've had both over the last year, but the price of gold has continued to move lower, month after month, apart from a brief run this summer.

The reasons for gold's continued fall, in spite of the apparent decay of the world, just might surprise you…

Gold Is Heavy, but Macroeconomics Is Heavier

As it happens, there have been quite a few factors that have been weighing gold down, according to Money Morning Global Resources Specialist Peter Krauth.

"Gold is still in the bottoming process that started in April," said Krauth.

The price, said Krauth, "reflects a few things. First, there's the European Central Bank (ECB) rate cut, which strengthened the dollar on a relative basis. A strong dollar means less demand for gold. The second thing is the 2.8% economic growth reported for Q3, which is up from the original estimate of 2.5%."

Combine that with a stronger-than-expected jobs report and "Investors start thinking – perhaps erroneously – that the Fed will start seriously considering tapering sooner than March 2014."

Statements from the Federal Open Markets Committee (FOMC) have indicated that tapering – the process of ending quantitative easing – would only start if the economy showed signs of strengthening. Better-than-expected gross domestic product and payroll growth do, typically, indicate economic strength.

Tapering would involve increasing interest rates. Traditionally, rising interest rates leads investors to pull out of gold in search of better yield. This, naturally, sends gold prices lower.

One traditional price support for gold is also missing, says Krauth.

Around this time of year, there is usually a spike in gold prices as India prepares for the Hindu festival of Diwali. According to The Wall Street Journal, Indians have purchased half as much gold as they bought a year ago. This was largely due to government efforts to contain India's current-account deficit by imposing a 10% tariff on gold imports.

"I believe the import restrictions and taxes, causing restricted supply and higher prices, have undeniably dented Indian gold demand, providing no support for gold prices," Krauth says.

There's more to the Indian gold situation, however, than meets the eye. On Monday, Peter will reveal an incisive report explaining why one of the world's largest countries is sitting pretty, even without imports of its favorite metal.

In the meantime, just because prices for gold are low now, doesn't mean they'll stay low forever. The fundamental reasons for owning gold are still in play, and here's why they'll start to play out next year.

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Join the conversation. Click here to jump to comments…

  1. tom | November 8, 2013

    gold is going down and bitcoin is going up…..

  2. 000041400559 | November 11, 2013

    Why can't we just say that the Government and the Free Market Economy conspired to bring the price of gold down. We can see now that The Government is not the enemy of the Free Market Economy, and Conversely, the Free market Economy is not the enemy of the Government.

    Obviously, they both came up with ObamaCare. Maybe ObamaCare is not the Socialist Scheme that many purport it to be. Maybe ObamaCare is really the Free Market Insurance Companies, reigning havoc on The Citizenry of the United States.

    I propose a new fundamental concurrent relationship: Gold will go north, as ObamaCare Succeeds.

  3. John | November 12, 2013

    Pay attention, folks. Reports that the gub'ment has manipulating both to gold and silver markets are not new; and, THEY ARE REAL!
    The younger folks know what is happening. Us old folks, who believe in the longs need to listen to them. They will trade daily or every other day to make a dollar, where the "longs" don't "think" that way.
    Although I have not used this strategy, yet, I do believe they might know what is "right," for now.
    Most of my metal is just run of the mill silver/gold and some is investment-grade. I have been thinking about moving some around and changing my savings plan, a bit, i.e., keep a little around the house, so to speak, for short term gains, and keep the investment stuff for the long haul. It does make sense to me. Because I have over 100TP to play with.
    Keep your eyes open, folks, and set your savings plan. Mine is 600% of what I paid, meaning a 500% profit. I might consider less, to play around with; but, I don't need to, yet.
    Pretend that you are Gomez Adams, and, you only go to the vault to "pay the monthly expenses," when the time comes. For me, I don't need to, yet.
    For you, keep your eyes open!
    And, thank you, Money Morning, for reminding me to do the same thing!

  4. H. Craig Bradley | November 15, 2013

    OBAMA CARE is FAILING

    Most of those who have so far actually been able to enroll on either the Federal Gov. Healthcare website or any of the state-sponsored insurance exchanges have chosen Medicaid, not private health care policies. In addition, young and healthy individuals have looked at the premiums and other costs associated with these policies and decided to just pay the penalty instead. Businesses got a 1-year waiver from obamacare. Many of these businesses will simply discontinue their company group health care policies in 2015 and pay the penalty. So, ObamaCare will just become another tax people pay, whether it works-out or not. I say it will fail and gold will go south. There is always an alternative reality or point-of-view.

  5. kenezen | November 17, 2013

    Internationally the S&P is finally becoming tired. America is becoming more transparently a Consumer and not a MFG producer. Consumers globally will slow: Gold up, S&P down, Dollar down
    Coffee up. Soon between now and by end of 1st quarter 2014. Long term trends.

  6. Jasbinder Singh | December 19, 2013

    Can anyone suggest me what to do with gold…I have all the positions in OPEN BUY positions and its like a nightmare. Are there any chances that Gold will rebound and will go up ? Please suggest

    • james warren | March 19, 2014

      The squigly line goes up and down mate. Like every other manipulated commodity out there. It will go back up but when ? Are you in for the long haul ? if not then get out is my advice. I used to think that if there is an economic meltdown then the price will skyrocket but I now feel the only things that will be worth anything are fuel and food in that scenario. Best you can hope for is that one of the BRICs countries bring out a new gold standard. If that happens though the US will wage WW3.

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