The Recent Weakness in Gold

Last November, Janet Yellen said, “I don’t think anybody has a very good model of what makes gold prices go up or down.”

Well, she obviously doesn’t read Crossing Wall Street!

While the stock market has been rather quiet lately, the gold market took a beating yesterday. The price of the yellow metal dropped more than $20 an ounce to close at its lowest level since mid-June.

Interestingly, this Saturday will mark the three-year anniversary of gold’s all-time intra-day high of $1923.70. Dear lord, was it really that high? Gold was up a little bit today but it’s still off by more than one-third since its high from three years ago. This has been a rough bear market for the gold bugs.

Gold closed at $1,270.70 today and I think there’s a chance it could soon test its closing low of $1,187.10 from last December. Gold tends to move in long multi-year trends. Once the trend is in place, it’s darn hard to stop. At least, that’s the historical behavior.

So why has gold been heading down? I suspect that it’s in anticipation that the Fed will raise interest rates sometime next year. There’s still some debate as to when that will happen, but I think more investors have reconciled themselves to the fact that it will be an event in calendar year 2015.

Once real interest rates start to rise, then gold will come under more and more pressure. I think a lot of gold investors got used to easy times. For right now, I’m staying away from gold.

Posted by Eddy Elfenbein on September 3rd, 2014 at 4:24 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.