This Bloomberg/Businessweek story offers up yet another premature epitaph for the gold market after its dismal showing in 2013, a year that still has four-and-a-half months to go and, surprisingly, is suddenly looking up for the yellow metal. Clocking in at 3,000+ words, this is obviously a case of quantity over quality as should be clear via the excerpts below.
During a 12-year bull market, the metal was promoted as a hedge against inflation, a store of value and a spectacular investment in its own right, gaining more than sevenfold. Its rise resembled historic moves like the Internet stock bubble of 1999-2000.
“The gigantic, decade-long rally I don’t think will be repeated, at least in my lifetime,” said Michael Aronstein, 60, president of Marketfield Asset Management LLC, which manages more than $13 billion in New York. Aronstein predicted the 2008 slump in commodities prices and the 2009 rebound.
After peaking at $1,921.15 an ounce in September 2011, gold fell to as little as $1,180.50 in June, the lowest since 2010, before recovering yesterday to $1,321.67. ABN Amro Group NV analysts consider it a respite, predicting the price will average $1,000 next year and $840 in 2015 because a stronger U.S. economy will limit gold’s appeal.
OK, check in with New York money manager or two, most of whom never liked the metal and never invested in it until they couldn’t avoid it in recent years since its performance had trounced just about everything else.
Next step, point out how much money prominent gold bulls have lost and how small, late-to-the game investors have fared.
The drop frustrates ordinary and sophisticated investors alike. John Paulson, the New York hedge fund manager noted for making $15 billion with a bet against the U.S. housing market in 2007, told investors in February 2012 that gold would be his next triumph. His gold fund lost 59 percent through July this year, according to a person familiar with the results. The University of Texas Investment Management Co. — whose advisers include Dallas hedge fund manager Kyle Bass, also known for a winning housing gamble — has seen a gold hoard once valued at $1.5 billion decline by more than $400 million.
…
“We’re holding trash bags,” said Philip Mann, 53, who with his wife put about $160,000, half their retirement savings, into gold and silver coins starting in 2009. They’re now worth at least 40 percent less, including sales mark-ups, he said. The drop forced him to cash out a 401(k) retirement plan, losing money to penalties. It also drained resources for two sons’ college bills and the planned purchase of a new home, said Mann, a retail supply-chain manager in Portland, Tennessee.
Now, point out how it really is just a barbarous relic.
Gold advocates say there remains deep-rooted demand for the metal that has captivated humans since it was fashioned into decorative objects on the coast of the Black Sea 6,000 years ago. In countries like India, where weddings and other rites are steeped in gold-gifting, this year’s price drop caused long waits at jewelry stores and delighted Supriya Gupta, a teacher in Kolkata. She picked up a toe ring, anklets and a tiara for her soon-to-be married daughter and a pair of earrings for a younger one.
Now here’s a surprise, ask Bill Fleckenstein (oh, that’s right – always have to have a contrary view, but don’t spend too much time on it here).
“People own gold because they don’t trust the central banks,” said William Fleckenstein, author of “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve,” a 2008 book arguing that the Fed caused repeated asset bubbles with artificially low interest rates. The price will be “much, much higher” within five years and stocks will crash again, he said.
Next, dismiss jewelry demand in Asia and remind readers it was just a bubble.
Jewelry, less than half of all gold purchases last year, is also a marginal factor compared with the wave of speculative investments, skeptics say. From 2008 to 2012, investors worldwide bought about 8,000 metric tons, the equivalent of more than three years of global mine production, according to the World Gold Council. In the seven months through July, about 25 percent of the gold in one type of investment, known as an exchange-traded product, has flowed out.
“Gold is still a bubble,” said Ronald Wildmann, managing director of Basinvest AG in Zurich, which manages 100 million Swiss francs ($107 million).
Now, mention the sleazy “Cash for Gold” and Glenn Beck types that, to be sure, haven’t done the gold market any favors as the price was rising.
Viewed as a fringe holding by some pension funds and advisers during the long bear market, gold suddenly went mainstream. In the U.S., “Cash for Gold” signs sprang up on street corners coast to coast. Radio personalities promoted gold coins, purchased by people like Mann, as protection against U.S. deficits. Exchange-traded products opened the market to everyday investors, allowing them to buy shares representing actual holdings of gold without the hassle of taking physical delivery.
And … on to the negative outlook from investment banks.
In April, the French bank Societe Generale SA declared “the end of the gold era,” and Goldman Sachs Group Inc. forecast a price of $1,270 by the end of 2014, contributing to the price plunge. Goldman has since lowered its 2014 target to $1,050.
Seitz went to London in April to raise money for his newest venture, a developer of Kazakhstan gold assets called IRG Exploration & Mining Inc. He met with eight analysts and bankers. Six weeks later, four of them had lost their jobs, he said.
And a little piling on for the gold miners, who also didn’t do the gold market any favors via share dilution and reckless spending in recent years.
Vancouver is home to more than 700 mining companies scattered among high-rises framed against the stunning North Shore mountains. They’re often small, employing a handful of people who then hire auditors, engineers or helicopter pilots to reach remote sites. Many are struggling to survive. The median Vancouver mine exploration company has $325,000, enough to last less than five months, according to data compiled by Bloomberg.
Jeff Sundar, 38, cut his monthly salary by more than half, to C$5,000, last year to stretch the cash of his Vancouver explorer, Entourage Metals Ltd. Its stock has dropped 81 percent to 9.5 Canadian cents since it raised C$5.35 million in a February 2011 initial public offering. The firm had four full-time geologists at the time; now it has one.
Of course, the most glaring problem about this article is that there is nary a mention China’s ravenous appetite for gold that has shattered all sorts of demand records this year – far outpacing the oft-mentioned ETF outflows – and the fact that demand in India will be near record levels this year despite draconian steps taken by the government to curb demand.
That premiums remain quite elevated as a record amount of gold flows from the West (where prices are set) to the East (where they can’t get enough of the stuff) might have been worth pointing out too since, at some point, this is going to impact the price.
