Is Gold About to Lose Its Shine?

Have investors gone gaga for gold or what?! Thanks to Big Pippin‘s stylish needs, the precious metal is now up over 623% of its value twelve years ago, priced at around 1,550 USD per ounce. Heck, it’s been hitting highs every month, scoring its newest high this past May at 1,575.79 USD per ounce. Boo yeah!

But you know what they say… “What goes up, must come down.” Naysayers think that gold’s 12-year bull run may come to an end soon. Here are three reasons why:

No more QE2.

A few market junkies say that the conclusion of QE2 may be the beginning of the end for gold.

The World Gold Council (WGC) is worried that the Fed pulling the plug on QE2 could be the first step towards policy normalization and interest rate hikes. This would in turn be bearish for gold since returns in Treasuries and the U.S. dollar would be higher, and would therefore give investors other options to park their assets.

On top of that, the end of quantitative easing is supposed to reflect better economic conditions. Remember that gold usually rallies in times of risk aversion as it is regarded as a safe haven asset. So, assuming that economic activity does pick up in the U.S., demand for gold would probably lessen.

Low inflation.

Another reason why investors go for gold is because they use it as a hedge against inflation. The reason for this is that throughout history, gold has always maintained its intrinsic value, and hasn’t been susceptible to price fluctuations.

However, inflation pressures have somehow been muted in recent months. In April we saw that CPI came in lower at 0.4% than its 0.5% reading for March. On top of that, the head honcho of the Fed himself, Ben Bernanke, said that inflation will most likely remain below 3% over the next two years or so!

Now that’s one more reason to stop collecting ‘em bling-blings, right?

Hotshots are dumping gold.

George Soros, known as the man who broke the Bank of England, just sold around 800 million USD of gold. He is one of the hottest dawgs in financial markets and his description of gold being the “ultimate asset bubble” has gotten a lot of his fanboys thinking about shorting too.

If you’re a technical analysis kind of dude or gal, you might wanna take a look at the monthly chart of XAU/USD.

Gold monthly chart

Shabam! Nope, no need to wear any candlestick beer goggles – that really is a sweet hanging man! Now if you paid attention when you attended the BabyPips.com School of Pipsology, you’d remember that a hanging man is a strong reversal candlestick pattern, indicating that buying pressure may be dying down. If we see a solid bearish candle this month, it may just be a sign that this Golden Run may be coming to an end.

So it’s time to short?!

Personally, I’d wait a bit before I start selling my golden nuggets or anything highly correlated to the shiny metal (ahem, I’m talking about AUD/USD). Heck! We have yet to see any significant pick up in the U.S. economy and with European debt woes still lingering around, risk aversion may just be around the corner.


  • investor

    I think Gold price will continue to rise, these days there’s more trust in gold than in currencies