The hot topic of the moment - along with the S&P reaching new all time highs (see "The Road To 1600″, April 10) - is the collapse of the gold market. In general, most investors have little interest in gold. They don't understand it and they don't care about it. It's a niche market. But lately everybody is talking about it.
Societe Generale wrote a piece titled "The End Of The Gold Era." Goldman Sachs recommended shorting it. The New York Times ran a feature on Thursday ("Gold, Long A Secure Investment, Has Lost Its Luster," Thursday, April 11, B1). Paul Krugman devoted his Friday op-ed to it. On Saturday morning, Josh Brown wrote an over the top obituary to the gold bull market while insinuating that belief in gold is equivalent to religious faith: "Where the $#!@ is your Gold Messiah now?" he bellowed.
Based on the quantity and tone of the chatter, you'd think gold was on its way out. In fact, it is down only 20% since its 2011 highs. Let me say that again: gold is down only 20% from its 2011 highs. A 10 year chart shows that gold is still up nearly 300% in that time period.
A longer term perspective suggests that this is merely a blip in an ongoing secular bull market. All of the factors that have driven gold higher the last 10 years are still in effect. Gold is a store of value that trades inversely to the supply of and confidence in paper money. The creation of new money by global central banks has never been greater at any time in history - the Federal Reserve, the ECB and now the BOJ.
Technically, volume in the SPDR Gold Trust ETF (GLD) Friday exceeded 50 million shares for the first time since the peak in the Fall of 2011. Just as there are countless bearish stories on gold now, there were bullish stories back then. We are much closer to the end of this correction than to the beginning of a collapse.