Forbes.com reports this week that “gold has held above $900 an ounce but lost nearly $20 to reach a two-month low last week. The yellow metal was weighed down by deflation fears and broad-based commodities weakness stemming from U.S. regulatory pressure to limit speculation in energy and metals markets.”
The article continues, “The tendency for the past couple of weeks is that the gold market followed stocks. ‘It is certainly a (gold) rally but the resistance has not been broken,’ said Leonard Kaplan, president of the Illinois-based Prospector Asset Management.”
Furthermore, the article says, “Gold, which fell 2% last week as dollar strength and losses in other commodities pressured prices, was seen as vulnerable to further losses from here, with the $900 an ounce level of support keenly eyed.”
However, The Wall Street Journal reports that inflation-hedge buying of gold is loosing ground. "People aren't still jumping headfirst into the bullish theme," said Michael Gross, broker and futures analyst with OptionSellers.com.
Timothy Silvers, writing for Gold-Eagle.com, reports, “There are some factors that could also contribute to more weakness for the precious metals. Lately, it seems that investors have been overly optimistic that the world economy will recover quickly.”
He says “this led to large increases in stock markets and was a big factor in May that drove up the price of commodities, including oil, gold and silver.” However, “new economic data is leading to the conclusion that the recovery will likely take longer and be weaker than previously expected. Stock markets and commodities are now selling off and gold and silver are trading down along with them.”
Because a recovery in the second half isn’t likely, Justice Litle of Macro Trader is recommending readers not buy gold or gold stocks right now. Justice says, “We’re not in the midst of a standard cyclical recovery as in years past. Instead we are adjusting to a ‘new normal’ as Mohamed El Erian of PIMCO has dubbed it.”
So what do you do with your money right now? Well in the longer term, Justice still likes gold stocks. He adds, “Before this recent breakdown, there was an argument that gold stocks could have gone either way. It might have been that gold stocks would break out higher, as scared hedge funds piled into gold stocks as a sort of safe haven in an otherwise crappy environment.”
“But it didn’t happen that way,” Justice explains. “Gold stocks got trashed right alongside oil and energy stocks. And that tells us loud and clear that, at least for now, the whole hard asset complex is being dumped as inflation fears recede, due to a sharp fall in second half recovery expectations.”
However, since Macro Trader’s focus is to uncover long-term trends while protecting one’s wealth, Justice says, “That’s why we are out of gold and gold stocks for now. When the time comes round again to buy hard assets and other inflation-related themes – and it certainly will – we will do so aggressively. But that time isn’t here yet...”
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