-The Associated Press
Good news hasn't been kind to gold. As fears of runaway inflation, currency crises and economic ruin fade away, so does bullion.
It is now closing in on its recent low of $1,200 (U.S.) an ounce in June, its lowest point in nearly three years, following a $34 slide on Monday. For the year, it is down 27 per cent and is nearly certain to end a 12-year winning streak and mark its worst annual performance in more than three decades.
In many ways, this shouldn't be concerning. If gold is a hedge against economic catastrophe, then its fading appeal is a welcome development. For anyone pinning their hopes on a gold rebound, though, the dramatic slump looks like part of a worrisome trend.
Indeed, many strategists have turned cautious about its near-term prospects in recent months. In October, Goldman Sachs called gold a "slam dunk sell" and said that the price would likely fall to $1,050 an ounce by the end of 2014.
Credit Suisse said that selling gold is their top recommendation when it comes to trading raw materials, and Morgan Stanley advises clients to stay away from it.
Even hedge fund manager John Paulson, a huge gold investor, halved his exposure to the SPDR Gold Trust in the second quarter, to about 10 million units. In November, he said that he wouldn't personally invest more money in his PFR Gold Fund, implying that his enthusiasm is fading.
Gold enjoyed a remarkable run over the previous decade. Its price more than doubled in the four years following the financial crisis, when extraordinary stimulus measures from the world's top central banks fed concerns that they were laying the groundwork for much higher inflation.
Traditionally, gold has been seen as an ideal hedge against inflation – and a haven from other economic and political problems – which is why some observers began to entertain the prospect of gold's rise to $10,000 an ounce.
But while the global economy is far from healed, most doom-and-gloom scenarios look increasingly far-fetched.
Five years after the Federal Reserve cut its key interest rate to about zero per cent and initiated aggressive rounds of bond-buying to stimulate the economy and hold down borrowing costs, inflation remains too low rather than too high.
In its last monetary policy statement, the Fed reiterated that inflation has been running below its longer-run objective.
If the Fed tapers its bond-buying program, known as quantitative easing or QE, as the U.S. economy shows more signs of gaining strength, concerns of rising inflation could fade even more.
Fears of a currency debacle have also not borne out. European Central Bank president Mario Monti has said he will do "whatever it takes" to preserve the euro. It might not take much: The euro zone's sovereign debt crisis has settled down and the region is now emerging from recession.
As for the U.S. dollar – the centrepiece of most currency-blowup scenarios – the envisaged death-spiral hasn't arrived. The U.S. dollar index has risen more than 13 per cent over the past five years.
No doubt, gold is going to enjoy rallies as bad news surfaces and stocks wobble at precarious highs.
But the rebounds are likely to be brief. If the past five years have failed to bring the global economy to its knees, it seems unlikely that ruin awaits in the next five years as growth picks up and unemployment rates fall.
That means the signal from gold's declining price over the past two years is entirely upbeat: The world isn't such a scary place any more.
David Berman