The fundamental case for gold is quite clear as it pertains to ongoing global monetary/fiscal crises and the threat that central bank intervention/”money printing” leads to future runaway inflation.
In fact, from a crisis-hedge standpoint, isn’t the world we live in today, with the EU on the cusp of eviscerating, effectively a panacea for the metal?
If I had gone to sleep a few years ago and woken up to the mess in Europe today, I’d be shocked to see the metal was ~20% off its highs in the $1,900s.
Why is gold not doing what it “should” be doing? Tough to say.
That said, in assessing purely the price action of the metal, the path of least resistance for gold appears to be decidedly down and negative, until proven otherwise.
Note in the monthly chart below that gold has recently broken down from a pennant consolidation pattern. Historically, such pattern break-downs lead to sustained downside.
Moreover, note that the price of the metal has pierced below its 12 month moving average (MA). Historically, as the highlights in the chart suggest, such moves have led to material and sustained downside in the metal.
In fact, the only other time this has occurred in the past 16 years was in 2008 (global liquidation of everything ex USDs) and before that in 1996, when gold was beginning a final, six year descent into what was its secular bottom.
Given the infrequency of moves in price below the 12 month MA, such price action needs to be respected, regardless of the fundamental case for owning the metal.
Lastly, owning something with a great fundamental outlook in an unfavored sector/asset class is likely trying to swim upstream in the lazy river – it can work, but it adds needless effort to get the call right.
As such, it should also be noted that the ratio of the CRB Index vs. SPX in 2012 broke below trend-line support that had been in place since 1999, effectively from a technical standpoint, ending what had been over a decade of commodity out-performance over equities.
This support break suggests that commodities as an asset class now face the prospects of swimming upstream in the lazy river – the group, including gold, likely faces some sustained period of under-performance as an asset class.