GoldGood news is bad news if you're a gold bug. Double-dip recession fears, financial instability in the eurozone and central bank money-printing pushed gold prices to new nominal all-time highs seemingly every other day in December.

What a difference a month makes.

Gold futures have tumbled nearly 8% in January and are closing in on a full-blown technical correction of a 10% drop. Trading hands at around $1,320 on the Comex division of the New York Mercantile Exchange, the precious metal has lost $100 an ounce from its non-inflation-adjusted record high hit just last month. Indeed, gold prices haven't been this low in four months.

Friday's action notwithstanding, in which gold prices rose as the stock market sold off, safe-haven assets are suffering at the expensive of equities and other riskier assets. That's what happens when the global economy appears to be picking up steam. The allure of owning gold, which pays nothing in dividends or interest, starts to dim in a context of soaring stock prices and, gulp, rate hikes.



Gold is a hedge against inflation. The Federal Reserve remained committed to a near-zero interest rate policy on Wednesday, but global food and energy prices are rising. McDonald's (MCD), Procter & Gamble (PG) and Colgate-Palmolive (CL) all testified to that when they released fourth-quarter earnings earlier this week. And on Friday, we learned that U.S. gross domestic product grew at an annualized rate of 3.2% in the last three months. Even though this is under the 3.5% estimate that was widely forecast, which helped spark investors to sell stocks, it's a strong move up from the previous quarter's 2.6% rate.

Technically, the economy is now longer in recovery mode. It's expanding. At some point, the Fed will raise rates as part of its mandate to promote price stability. Just as important is what's happening overseas. China is the force behind the global recovery, and Beijing has moved repeatedly to tighten fiscal policy in order to cool China's torrid growth.

"Everyone focuses on what the Fed is doing, but for the gold market it is also important what the Chinese and Indian central banks are doing," write analysts at Natixis Global Associates, in a note to clients.

And then there's the debt drama in Europe, which has eased considerably. Just look at the euro, which has jumped to around $1.36 from $1.30 in the past month or so. With the Dow Jones Industrial Average ($INDU) earlier this week hitting the 12,000 level for the first time since June 2008 and the S&P 500 ($INX) at levels not seen since Sept. 2008, risk is the new black. Who needs gold?

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Dereck

Major Fraud Alert


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May 29 2011 at 1:41 AM Report abuse rate up rate down Reply
bfpowersjr

Mr. Burrows: A comparison chart of GLD and SLV at www.bigcharts.com (all data... weekly) suggests to me that market makers have been simultaneously selling gold and buying silver recently. My question is... will this continue?

February 14 2011 at 11:42 AM Report abuse +1 rate up rate down Reply
1 reply to bfpowersjr's comment
bfpowersjr

Perhaps I should have said that market makers have sold GLD short and bought SLV long, simultaneously, recently. This also might explain some of the price action in GLD described by Mr. Smith in his recent article.

February 14 2011 at 12:10 PM Report abuse rate up rate down Reply
Walking man

Glenn Beck's sheep believe gold and silver are always a good "investment".
Tell that to the sheep, who in 1980, bought gold and silver only to watch it
plummet. Silver went from $48 down to $5. Gold went from $800 down to $250.
Only the sheep buy after the market has had a sharp rally. Once again, the ultra-
wealthy sheer the sheep.

January 30 2011 at 6:02 PM Report abuse +1 rate up rate down Reply
2 replies to Walking man's comment
vcgh2000

So walking man, guess you missed the last ralley.....people who bought gold in 2004, and cash out now, are making a healthy profit.

January 30 2011 at 8:13 PM Report abuse +1 rate up rate down Reply
tcrcatlin

And that's why every central bank in the world is trying to by as much as it can right now. If you where smart you would to!

January 30 2011 at 8:58 PM Report abuse +1 rate up rate down Reply
mtw1998

If gold goes to 1300, I'll buy more. The stock market is where the bubble is...... all that growth based almost entirely on profit? Profit that's about to be attacked by legislators and regulators. No wonder the derrivative folks area making so much money (selling "insurance" in case paper inventments crash). 2011 will see this bubble burst. The Fed has all but promised inflationary policy. The only reason our currency looks good is cause every other cuurency looks so terrible. The "recovery", if you can call it that, has created NO new jobs, and the residential and commercial real estate markets continue to experience the worst conditions EVER. Gold isn't the only investment option under such circumstances, but it certainly is not a stupid one - and is easiest for most "lay-persons" to buy.

January 30 2011 at 11:37 AM Report abuse +3 rate up rate down Reply
vcgh2000

The US Treasury stopped redeeming 'Silver Certificates' in 1969.....Nixon closed the Gold Window in 1971.....Why?

January 30 2011 at 10:59 AM Report abuse rate up rate down Reply
2 replies to vcgh2000's comment
robertvptrsn

Because the French demanded real money (gold) in exchange for their U.S. paper currency. Nixon had no choice but to switch to a fiat currency which will eventually destroy our economy. No fiat currency has ever survived and the U.S Dollar unfortunately is no exception.

January 30 2011 at 3:48 PM Report abuse -1 rate up rate down Reply
rickcbn

For those on the left that keep bashing Glen Beck: It is obvoius by your comments that you never WATCHED Glen Beck. If you did you would become a fan.
The liberal left media is telling lies about him. Please do not comment on a show that you never watched.

January 30 2011 at 9:04 AM Report abuse -2 rate up rate down Reply
1 reply to rickcbn's comment
vcgh2000

I cant't get over how many columns on daily finance are unbrideled plugs for the stock market. This is obviously another plug to suck in the "little guy" so the institutional investors can " make money under every possible scennario".

January 30 2011 at 10:38 AM Report abuse +2 rate up rate down Reply
kaylun

The only reason gold fell is because the Rothschildes are playing around with it. They probably dumped a couple of tons on the market but had one of their own people instantly buy it at a lower price are some BS like that. When the paper currency crashes if you do not have gold or silver your probably going to starve.

January 30 2011 at 8:46 AM Report abuse +2 rate up rate down Reply
depotofam

When the bottom falls out of the gold market and the bubble bursts, I can see folks with pitchforks and torches outside of Glenn Beck's estate.

January 30 2011 at 8:07 AM Report abuse +3 rate up rate down Reply
1 reply to depotofam's comment
tcrcatlin

When the bubble does burst it will be because we are in a new monetary system and gold will no longer be needed as an insurance policy against the U.S. dollar.And if you don't understand that then you need to be honest with yourself and research it with the possibility of what could happen in the very near future.But you must be open minded and be honest with yourself.Like I said INSURANCE POLICY!

January 30 2011 at 9:15 PM Report abuse rate up rate down Reply
Mark

Gold will drop considerably more in 2011, folowed by astronomical new high triggered by the Chinese as they seek to bolster their currency. (Watch and see)

January 30 2011 at 7:53 AM Report abuse +2 rate up rate down Reply
Welcome Mr. Robb

I try and do the opposite of what Glenn Beck tells me; he says "buy gold" and I buy stocks. When he says don't vote for a certain person I usually vote for them. He waves guns and swastikas and I tell him to put them both where the sun don't shine! Idiot!

January 30 2011 at 6:33 AM Report abuse -5 rate up rate down Reply
2 replies to Welcome Mr. Robb's comment
Mark

Mr, Robb; I believe YOU are the idiot, not Glenn Beck.

January 30 2011 at 7:55 AM Report abuse +2 rate up rate down Reply
robertvptrsn

Mr. Robb...how is it possible that you do the "opposite of what Glenn Beck" tells you when it's quite obvious to any loyal viewer that you've never watched his program!
The only thing Glenn Beck tells his viewers is to never believe or quote what he says. On nearly every show, he pleads with viewers to do their own research. But why do I bother telling you this when it's quite obvious that you're just another media brainwashed, kool-aid drinking liberal!

January 30 2011 at 2:23 PM Report abuse rate up rate down Reply