Mixed signals from global economic uncertainty, currency war.
The gold sell-off today has some gold bugs already licking their chops.
“If it gets down to $1,200 an ounce, I'm a buyer,” said Janet Briaud, founder of Briaud Financial Advisors.
She compared the current sell-off of the commodity, which was down more than 9% to $1,360 an ounce in midday trading today, to a similar sell-off in late 2008 when gold fell more than 30% from the previous year high to $650 an ounce.
“Two or three years ago, people started getting into gold and they didn't really understand why they were doing it,” Ms. Briaud said. “And right now, those investors that got in at the highs are panicking and getting out.”
As extreme as these kinds of sell-offs can appear, global macro hedge fund manager Bob Gelfond described the price drop as “somewhat random.”
“It's almost like a fire hose flying around that you can't control,” he said.
For a lot of market watchers, the latest gold sell-off can be traced to speculation that Cyprus, along with a host of other ailing European nations, will start selling from gold reserves to pay down debt. That kind of flood of selling is considered a major threat to gold prices.
More recently, the gold market and commodities prices in general are reacting to weaker economic data from China over the past few days.
“From our perspective, the majority of people look at global central bank policies as inflationary, and have gotten into gold as a result,” Mr. Gelfond said. “And now you're seeing the other side of that two-way street of speculation with all these downward moves in commodities, and this is the first big down move we've seen in a while in commodities.”
Ms. Briaud, who remains comfortable with her average client allocation of 10% in gold, admitted that this is the worst sell-off she has seen in gold since she started investing in the precious metal in 2003.
“My view at the time was, there was a lot of uncertainty going on in the world, and I was concerned about the dollar and the overall economy,” she said. “Gold was a very hated asset back then, and everybody thought I was off my rocker for investing in it. And that's the way I like it, because I tend to be contrarian.”
Ms. Briaud explained that the current gold sell-off might also be a reaction to investors' not seeing the inflation that they had been hoping for, thus making gold less necessary as an inflation hedge.
“The two factors that cause inflation are incomes rising and an increased velocity of money through bank lending, and we haven't seen either of those things,” she said. “But even though our currency has gone down and we haven't seen inflation, the price of gold has done well.”
Ms. Briaud added that her position on gold remains solid for as long as the current global currency war remains.
“Japan has been very open and honest about wanting its yen lower,” she said. “We have a currency war going on right now, and that's why you still want some gold in your portfolio.”
