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Bearish on Gold

Last update on: Feb 02 2017

That’s the view in an article on Bloomberg.com. It quotes a number of analysts about Gold’s recent plummet into a bear market and the potential for an end to its long streak of annual price increases.

Gold’s a tricky investment. It’s still a fairly thin market, so the price can be moved by extra buying or selling from a relatively few sources. Also, central banks own something like 19% of the gold ever produced. So, if they want they can manipulate the price by buying and selling. Most importantly, it’s tough to know how to value gold. It’s price needs to be compared to something, and there isn’t an obvious choice for that. I suspect a strong influence on gold’s price is consumer demand from China and India, where it apparently is an important part of homes and daily lives. Lately, growth slowed in those countries so demand from consumer there also is likely down.

The last part of the Bloomberg article, however, cites some people making bullish arguments for gold.

Bullion slumped into a bear market in April even as central banks printed money on an unprecedented scale, Europe’s debt crisis spread and the International Monetary Fund made a fourth consecutive cut to its 2013 economic growth forecast. Gold’s drop at a time of record highs in U.S. equities underscores how some investors have lost faith in the surge that drove prices as much as seven times higher over the 12-year bull run.

“It’s the end of an era,” said Michael Haigh, the head of commodities research at Societe Generale SA in New York who correctly predicted the collapse a month ago. “ETF flows and hedge fund flows have gold changing direction for the first time in a long, long time. Prices are going to be dropping.”

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