Last week was a bad week for commodities. Gold bugs nonetheless keep telling us that the gold and silver price are on the verge of a huge run-up and that now might be the last chance to join the party. But in real life, it seems more likely that the big gold investors are leaving the scene through the back door. I read everywhere that China is a big buyer of gold these days, as is Russia and some Arab countries. This may be true, but price keeps sinking, so sellers must be bigger. And there are some serious arguments that can explain a further decreasing gold price.
- Inflation stays under control. Despite the enormous loads of cash Mr. Bernanke poured into the markets, the so feared 'hyper' inflation is still miles away. On the contrary, Central Banks should wish the inflation would be a bit higher in order to bring debts down.
- The debt crisis in Europe seems (for now) reasonably under control as well. The Euro didn't crash and countries like Spain and Italy are paying much lower interest rates than 2 years ago. When Mr. Draghi, President of the European Central Bank, stated that he would defend the Euro at all costs, markets stopped testing the southern countries. Now the PIIGS have time to get their balance sheet in shape. The fallout of the Eurozone seems more and more unlikely.
- The Armageddon-scenario for the world economy is no longer valid. Economy is trust and belief and few people believe in armageddon these days. Most common opinion now is that the global economy will grow slowly, but nonetheless will grow. Europe will stay behind but the Americas and Asia will lead the way. In this environment, stock markets will do just fine as the interest rates will stay low for a pretty long time. The housing market can recover slowly as well.
That being said, gold might just get out of fashion because gold is especially known for it's fear factor. And the fear is gone. Furthermore, there's no yield on gold and it has little use as a base material.
Of course, gold will always be gold, but the early adopters, the ones who got in on time, could very well feel that now is the time to get out again, leaving themselves with a nice profit in three years time.
For the crowd who got interested later on, maybe it's wise to wait for the next crisis. As always, Mr. Market will leave many slaughtered.