Gold has come a long way. The Coinage Act of 1792 set the price of gold at $19.39 an ounce. Earlier this month, gold futures reached an all-time high of $1249.70 an ounce. And gold is on track to experience its tenth consecutive annual gain this year: this would mark the longest upward trend since 1920, according to Bloomberg.
It gets better: earlier this month, at the Emirates Palace Hotel in Abu Dhabi, the world’s first gold ATM machine was unveiled. Yes…a gold ATM machine. The "Gold To Go" ATM is encased in a thin layer of gold, and it dispenses 24 karat gold: gold bars, customized coins…a total of 320 items. And the price is updated every 10 minutes, so the machine keeps pace with the international gold market. If you didn’t make it to the ATM, that’s okay. Gold ETFs have seen a bevy of activity lately, experiencing record inflows.
The gold rally is understandable. Gold is a safe haven (and a hedge against inflation), and recent uncertainties (from governments printing money to sovereign debt crises to the May 6 "flash crash") have left investors scrambling for a safe shelter.
And now, gold has tapered back a bit. At the close last Friday, futures settled at $1176.10 (a decline of 4.2% for the week). And SPDR Gold Trust pared gains, down 4.28% for the week. Does this mean that gold has seen its heyday come and go? Not necessarily. It’s possible this is just a retrenching after a new high.
Yes, it’s entirely possible that gold will resume it ascension…at least for a while. After all, gold is being used as a crisis hedge, and there is plenty of global instability to rattle the markets in the near future.
But at this point, I don’t recommend investing in gold. And the reason: right now gold is being driven by fear, and at some point, that fear will subside. And beyond that, inflation fears are muted (with the Consumer Price Index falling -.1% last month). The bottom line: too many investors have jumped into gold, and at some point positions will be reversed. And the big problem: as we have seen in the past, when gold falls…it can fall fast. Back in January 1980, gold (at the time used as a hedge against rampant inflation) reached a peak of $850, and then plummeted, and it spent over twenty years coming back. And who wants to wait around that long?SPDR Gold Trust (NYSEARCA:GLD), an ETF that holds physical gold (and a very popular gold play), saw its assets hit a record 1,220.15 tons of bullion last week.