FORGET THE GOLD?

My short answer is yes. The gold has a PhD from fear and geopolitics, so if is there any fear or turmoil in the world the gold usually jumps higher. If you look at the scary headlines in the couple of last months you could find easily many concerns and fears, but the gold is performing poorly and doesn’t show any bullish momentum. We are at the same level as in 2010 September. The price has come down from the record of 1,920 to 1,200 that is more than 30% drop so far.

There are still many gold advocates who forecast a new rally in each month and they recommended building up a longer term gold portfolio. I doubt that, I don’t see any long side strength in gold and we are expecting more loss. The new mantra now that is that September is the best month historically for gold or the demand rises in India ahead of wedding season in October. They say India loves gold. But that fact is that demand for gold in India fell 39% only in last year. Some pundits, forecasters see 1,400$ price in the short-term, maybe they are right, might happen easily some rebounce, but the trend is bearish for gold that is obvious. After the bigger than 35% drop the investors not panicing yet, but they will below 1,000$, I am sure about that.

Why we are sceptical about any gold rally? Here are some arguments below. 

The recent weakness of gold is fundamental. Historically and statistically proven that there is a negative correlation between stock markets and gold performance. The stock markets are symbols of euphoria and gold is symbol of fear. When the indices are performing well the gold needs to go down. The lost decade of 2000-2010 when the stock markets were basically only were ranging was a great period of gold, but in 2013 the DJIA and S&P 500 broke out from the huge range and started a rally, which is negative sign for gold. 

Gold is trading now close to 1,200$ levels far from the 1,920$ top and there is a high chance to test 1,000$ shortly. Gold tends to move in long multi-year trends and now we see a clear bearish trend since 2010. Plus when the FED will start to raise the interest rate, then gold will come under more and more pressure. So, we see the only option is to stay away from gold.

The BFM Assets Team.