Gold Loses Its Luster
Gold, “and the hard-bitten investors who favor it, are in trouble,” said The Economist. The metal’s price fell below $1,100 an ounce last week, 40 percent lower than its post–financial crisis peak in 2011, and the decline shows no signs of stopping. Though gold is often seen as a haven in hard times, a strong U.S. dollar and “a spate of unusually good political news” have tarnished its appeal. With the greenback going up and the U.S. economy steadily improving, investors don’t want their cash “tied up uselessly in bullion” when it could be earning a solid return. A nuclear treaty with Iran and a deal to keep Greece in the Eurozone have also made an impending global economic catastrophe less likely.
Gold has long been favored by a “fringe crowd” that doesn’t trust governments or the financial system, said David Weidner in MarketWatch.com. But these gold bugs should know by now that the metal is “a sucker’s bet,” with few real benefits. What’s different in the current market is that gold might be facing a real slide. The yellow metal has more competition than ever in the form of cryptocurrencies, such as Bitcoin, which “cater to a new generation of skeptics.” Gold may yet have its day again, but when it comes, “that day will be less bright, less shiny.”
The jury is still out on the staying power of digital currencies, “but I will always retain a healthy respect for gold,” said Terry Savage in the Chicago Tribune. It’s still the one asset that can’t be created or destroyed by the central banks. And it may yet prove useful as a hedge against inflation; let’s not forget that the U.S. faces an $18 trillion debt. Yes, right now, “gold is a drag on your investment performance.” But don’t rebalance your portfolio by selling gold at these levels. “The market has done that for you.”
“It is time to call owning gold what it is: an act of faith,” said Jason Zweig in The Wall Street Journal. Gold is meant to shine “in the darkest of days,” and many cling to it with a religious fervor. But while it has admittedly outpaced rises in the cost of living, its alternatives have performed even better. Since 1975, gold has returned an average of 0.8 percent annually after inflation, compared with 5 percent for bonds, 8.3 percent for stocks, and even 1.1 percent for cash. Considering that gold accounts for roughly 1.3 percent of the world’s financial assets, you’d do well to allocate about the same amount of your portfolio to it. Anything more “is a leap in the dark.”
see also finance and business knowledge
