Every adjective under the sun has been used recently to illuminate gold’s continuing fall from grace. Once a promising asset during the worst financial crisis of our time, the precious metal is now the laughingstock of the investing world. Gold gets labeled everything from a pet rock to a barbarous relic. Gold bugs receive the steel-toe treatment. But how much should you care that everybody seems to hate gold these days?
Nothing came to gold’s rescue in July as prices plunged to their lowest level in more than five years. Heavy selling took gold below $1,100 per ounce, a far cry from its $1,900 peak in 2011. In fact, prices melted for 10 consecutive days to log gold’s worst losing streak since 1996. Hedge funds are betting the pain will continue for the first time since the government started collecting the data in 2006, and sub-$1,000 prices feel like a real possibility to even the most loyal gold investors.
The only thing worse than holding gold is digging for it. While the metal itself is being taken to the woodshed, gold miners are clinging on for dear life. Shares of the Market Vectors Gold Miners ETF and its junior counterpart are both down more than 70% over the past three years. Individual names such as Yamana Gold and Kinross Gold Corp have drilled 80% lower to join the penny stocks crew. Even heavyweights Newmont Mining and Barrick Gold are struggling to find support in the current environment.
Adding insult to injury, few commodities — if any — attract the kind of media ridicule gold receives. You won’t find any oil slugs or sugar flies. Only “gold bugs” crawl around in the headlines. Perhaps the most peculiar aspect of gold’s situation is the fact that although gold investors are often painted as nervous nellies irrationally hiding in the woods, America herself is the biggest gold hoarder in the world. According to the World Gold Council, the United States holds 8,133.5 tonnes of gold in reserves, more than double Germany’s stockpile of 3,383.4 tonnes, which is the second largest.
True, some diehard gold investors continue to make excuses for the metal and even double down on their sky-high price forecasts, but this is a relatively small group. So small, it hardly warrants any attention. The most crucial lesson we should learn from gold’s fall is not how wrong some investors were about hyperinflation or any other earth-shattering event, but that all investors should recognize the risks associated with over-allocating resources to any one specific asset or belief. Going all-in on a single investment is rarely a smart move, whether you’re talking about commodities or stocks.
Follow Eric on Twitter @Mr_Eric_WSCS
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