Gold loses status as 'cure for everything'
NEW YORK — When the price of gold plunged $200 last month, many people thought they caught the sound of the gold bubble popping.
What Peter Schiff, the CEO of brokerage Euro Pacific Precious Metals believes he heard was a stampede of fair-weather speculators fleeing the precious metal.
Schiff and other champions of gold weren't shaken by the plunge. To them, it was just a short breather in preparation for another long climb.
All the reasons they give for buying gold haven't changed: Gold remains a refuge from disaster, they say, arguing that a steep drop in the dollar and a spike in the price of consumer goods are a threat.
“That's what happens in a bull market,” Schiff says. “The selloffs shake out the Johnny-come-latelies. It's healthy. Now, we can have a real rally.”
Gold, often touted as the most trustworthy of investments, has looked wild over the past month. After starting April above $1,600 an ounce, it dropped below $1,361 on April 15 and has steadily recovered to settle at $1,436 on Friday.
Gold was supposed to be a haven from turmoil. When the housing market started cracking and the stock market sank in 2007, the price of gold began to surge. Over the next two years, it soared from around $600 an ounce to nearly $900 in the depths of the financial crisis in late 2008.
For those who were wary of financial institutions or thought the Federal Reserve's rescue efforts would backfire, it became the favored investment. The television personality Glenn Beck advised his audience to stock up on gold bars in case the dollar became worthless. The Tea Party called for a return to linking the value of the dollar to the price of gold.
“People treated gold like the cure for everything,” says James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. “If you were worried about a depression, buy gold. If you were worried about inflation, buy gold.”
If fear of economic collapse started the gold rally, greed accelerated it. By 2009, speculators and others looked to ride gold's popularity. Hedge funds and other big investors piled in.
Anxiety and gold prices kept climbing in tandem. Right after Standard & Poor's stripped the U.S. of its top credit rating in August 2011, the price peaked above $1,900.
Instead of buying gold bricks and stashing them in their basement, many hedge funds and big investors turned to buying gold exchange-traded funds, which trade on markets like stocks. The most popular offering, the SPDR Gold Trust, attracted big investors like John Paulsen, who made billions betting on the mortgage meltdown, and George Soros.
It looks like the fast-money has soured on the yellow metal. Soros slashed his stake in the SPDR Gold Trust fund by 55 percent at the end of last year, according to the most recent regulatory filing.
Judging by the numbers, it looks like others decided to jump out of the market at the same time. Hedge funds and big investors pulled $8.7 billion out of gold funds last month, according to EPFR Global, a firm that tracks where big investors put their money.
EPFR says it was the biggest monthly withdrawal out of gold funds since the firm started collecting data in 2000. The SPDR Gold Trust unloaded 12 percent of its gold in April, selling 146 metric tons.
There's no single destination for all the money rushing out of gold, says Cameron Brandt, EPFR's director of research. The most popular places for investors now are real estate funds, junk bonds, emerging-market bonds and stocks in big companies that pay dividends. One clear trend that Brandt sees is investors pulling cash out of the safety of money-market funds in search of something better. Some of that money appears to be trickling back into the U.S. stock market.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pittsburgh’s tech startup activity rates last of 40 metro areas in report
- After years of downsizing, big houses make comeback
- New J.C. Penney CEO comes from middle-income America
- Floating homes offer ‘affordable’ option in San Francisco area
- Truffle dogs sniff out pungent fungus prized by foodies
- Corporate America speaking out on social issues, getting results
- Insurer Aetna to buy Humana in $35B deal
- Aetna to buy rival Humana for $35B
- How to land that 1st job after college
- Halliburton to close Indiana County office
- McDonald’s localizes menus to battle growing competition