For Gold Prices, Is the Bull Run Over?

×
goldAfter a decade-long bull run in the price of gold, the bears are beginning to come out of hibernation.

That may seem hard to believe after the recent run up in gold's price. With conflict rising in Libya and the crisis still brewing in Japan, the price of gold rose to $1,428 an ounce, up an astonishing 28.8% in the last year. A decade ago, gold was selling for just $268.

"While we do expect inflation to remain a concern, investors who are focused on gold will likely start taking profits and move their money into riskier assets such as equities, which have performed really well in this market," says Brian Bueno, an analyst at research firm IBISWorld, which has just published a report entitled, "Gold's Long Bull Run Is Set to Turn Bear."

Even some noted gold bulls are warning that prices have gone too high and that a major pullback may be in the offing. "Since early this year, I have become cautious about gold's ability to push substantially higher over the near term and have expected instead to see a sharper decline," wrote a commentator on Forbes.com. And investment adviser Mickey Fulp recently told Business Insider that gold is "overdue for a correction," though he remains a long-term bull.

Many American investors have been adding gold to their portfolios because other investments, such as Treasuries, which could always be counted on to produce income, have been such terrible performers in the last few years.

Summertime Could Be Big Turning Point

Bueno says the combination of Libya and Japan are driving investors into safe haven investments, like gold, temporarily, buts says these are short-term phenomena and that he is predicting the gold price to hover around $1,200 an ounce by year end, falling to $1,128 by 2013.

"We expect the price of gold to suffer major blows starting possibly this summer," he says.

He bases his argument on the belief that investors will prefer riskier assets like stocks to gold because the global economy will be regaining strength in earnest by summer.

Bueno says another key sign of a downtrend is that the amount of new gold bought by exchange traded funds that invest in the precious metal fell by 2% in 2010 and that U.S. demand for gold coins and bars was down by 8%, both indicating a slackening of demand.

Dan Major, a metals analyst at the Royal Bank of Scotland in London, is not as pessimistic about the outlook as IBISWorld is, but he is predicting that the gold price will average $1,350 in 2011, and then drop to $1,300 in 2012, before rebounding to $1,375 the following year.

In his view, gold will become relatively unattractive as rising rates increase the so-called opportunity costs of owning assets such as gold, which don't pay any interest. Opportunity cost is when a competing asset pays a better return, such as a short-term corporate bond or Treasury bill that pays its owner an interest rate.

"Gold and silver have become dependent on sustained inflows from investors, notably in the exchange traded funds," says Major. But maintaining that flow will be difficult to achieve with interest rates headed upward, he adds.

Major says interest in gold jewelry, especially in China and India is relatively robust, but Bueno says that while jewelry accounts for 60% of the market for gold, jewelry demand does not historically correlate with higher gold prices. So even if more people are buying bracelets and necklaces, that doesn't mean the price of gold will continue to rise.

Increase your money and finance knowledge from home

Investing in Emerging Markets

Learn to invest in a globalized world.

View Course »

Income Investing

Grow your nest-egg.

View Course »

Add a Comment

*0 / 3000 Character Maximum

72 Comments

Filter by:
dgcmagazine2011

" a commentator on Forbes.com and investment adviser Mickey Fulp"...Who? Yes, I can see your research into the matter went really deep. Why don't you ask someone who knows a bit about precious metals like Mr. James Turk of GoldMoney.com or Paul Tustain of BullionVault.com Both of these men manage over a billion dollars of precious metal each day. Both are bullish. How about Eric Sprott Sprott Asset Management (bullish)
"We expect the price of gold to suffer major blows starting possibly this summer," HA HA HA
You don't have to be bullish on precious metals to see the dollar dropping and everything priced in dollars rising. I'd have to say your article is short sighted and ignorant.
Mark Herpel
editor@dgcmagazine.com

March 25 2011 at 1:40 PM Report abuse rate up rate down Reply
kevinruiz55

It is fantastic time to refinance home mortgage. As Clark Howard says it is very tough to find these low rates for long time. Search online for "Mortgage Refinance 123" they found me THE lowest possible rate.

March 23 2011 at 7:05 AM Report abuse rate up rate down Reply
BUFFALO

I do not expect a sell off there's a lot more savings
these days and I think most people who bought gold did it
to diversify there investments. Plus peoples memorys are not
that short and people are ready to trust the market with all
there holdings.

March 22 2011 at 9:29 PM Report abuse +3 rate up rate down Reply
BUFFALO

I do not expect a sell off there's a lot more savings
these days and I think most people who bought gold did it
to diversify there investments. Plus peoples memorys are not
that short and people are ready to trust the market with all
there holdings.

March 22 2011 at 9:29 PM Report abuse +1 rate up rate down Reply
martinsportraits

The only RUN that is over is the value of the US dollar ...you can bank on that ! I will glady stay long on precious metals and watch your fiat house of cards fall down as the presses run 24-7!

March 22 2011 at 6:36 PM Report abuse +4 rate up rate down Reply
eestravantes

READ BETWEEN THE LINES !!$$
In other words, do not invest in anything unless you know what you are doing. In other words, do not invest in anything.
Come on, Wall Street guys who know what they are doing are filthy rich. The last thing they are going to do is tell you what they are really thinking. You will not find them writing free-lance articles. Mark Hulbert summed it up when he conceded that journalists learn in public. None of our employers would tolerate that.
Bueno, Fulp, and Major the big three of new age renaissance.
These guys have to laughing their arses off over this.
Brian Bueno, Industry Analyst IBIS World Marketing Research.
Mickey Fulp, peripatetic Mercenary Geologist.
Dan Major from Scotland, yes, Euro countries are rumored to be contemplating rate increases.

March 22 2011 at 4:58 PM Report abuse +2 rate up rate down Reply
eestravantes

READ BETWEEN THE LINES !!$$
In other words, do not invest in anything unless you know what you are doing. In other words, do not invest in anything.
Come on, Wall Street guys who know what they are doing are filthy rich. The last thing they are going to do is tell you what they are really thinking. You will not find them writing free-lance articles. Mark Hulbert’s summed it up when he conceded that journalists learn in public. None of our employers would tolerate that.
Bueno, Fulp, and Major the big three of new age renaissance.
These guys have to laughing their arses off over this.
Brian Bueno, Industry Analyst IBIS World – Marketing Research
Mickey Fulp, peripatetic Mercenary Geologist
Dan Major from Scotland, yes, Euro countries are rumored to be contemplating rate increases.

March 22 2011 at 4:57 PM Report abuse rate up rate down Reply
eestravantes

READ BETWEEN THE LINES !!$$
In other words, don’t invest in anything unless you know what you are doing. In other words, don’t invest in anything.
Come on, Wall Street guys who know what they are doing are filthy rich. The last thing they are going to do is tell you what they are really thinking. You won’t find them writing free-lance articles. Mark Hulbert’s summed it up, “Journalists learn in public.” None of our employers would tolerate that.

Bueno, Fulp, and Major—the big three of new age renaissance.
These guys have to laughing their arses off over this.
Brian Bueno, Industry Analyst IBIS World – Marketing Research
Mickey Fulp --peripatetic Mercenary Geologist
Dan Major from Scotland—Yes, Euro countries are rumored to be contemplating rate increases.

March 22 2011 at 4:54 PM Report abuse rate up rate down Reply
WILLS

A full year ago I said that gold would hit 1200 and plateau. It did. Most said this is it. I disagreed and said next plateau would be 1400. Any questions? The next plateau will be 1700, and that will be this year, around years end. 14 months ago I also said silver would be the better bet. Sure looks like I have been correct. Gold and silver will continue to rise, along with all of the food related commodities. Many make the argument of inflation and a falling dollar which will certainly be part of the issue, but this fact remains, and that is the earth's population has doubled in the last 50 years and improvements in agriculture have kept it fed. We are now in a period of seismic activity that will likely last another 5-10 years (if history is correct, and it usually is)which is effecting our weather and our ability to produce food. Rocket science is not required for this one.

See full article from DailyFinance: http://srph.it/i21WR5

March 22 2011 at 4:19 PM Report abuse +4 rate up rate down Reply
Louis Casamassa

Who is the idiot that wrote this article? Gold will never go down.
Gold will reach $2,000 an ounce by mid 2012 and the reason is simple, our dollars are worthless, even many foreign countries are not accepting the dollar. Even some states are using other type of currency, check it out. Silver is also going to reach $200 per ounce by mid 2012. Silver is a great investment for small investors and is still afforable. Stop listening to bears, only bulls.

March 22 2011 at 2:49 PM Report abuse +4 rate up rate down Reply
1 reply to Louis Casamassa's comment
icemanbill23

Right you are, Louis. It's a narrow minded myoptic view that looks at Gold and Silver as commodities only. Among many other factors, this continued (and necessary) aggressive monetary policy for the world's reserve currency will vitually guarantee a rise in Gold prices over the long run. America now purchases 80% or our own debt and that will be sure to rise with Japan unable(or unwilling) to buy more treasuries over the next several years. This 10 year Bull run for Gold is far from over.

March 22 2011 at 4:56 PM Report abuse +4 rate up rate down Reply