Gold prices fell this week after rising for months to all-time highs, according to Business Insider. The precious metal has fallen by 7.6% since Monday, with most of the losses coming during Tuesday’s session. This decline comes after a 63% rise since the beginning of the year so far.
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Investors have been piling into the assets as part of a so-called “drip trade,” a way to hedge against a falling US dollar amid concerns about unremitting government spending, mounting debt, and the possibility of another bout of inflation.
“Not much has changed in the fundamental outlook for gold, except perhaps a slight rebound in the dollar,” said Peter Perkins, global strategic partner at MRB Partners.
“Instead, the decline is more likely due to technology extending beyond the tumultuous preparation period,” Perkins said. In a note to clients published Tuesday, Perkins noted that his firm’s momentum indicator on gold had deviated by three standard deviations from a norm dating back to 1985.
“This is just an exaggerated momentum trade, and that’s all it really looks like,” Perkins told Business Insider. “Someone decided I was going to sell, or whatever the case may be, and that turned a profit.”
Gold, traditionally seen as a safe-haven asset, has achieved “stock” status this year, PIMCO co-founder Bill Gross told Business Insider this week.
Joe Tigay, portfolio manager at Rational Equity Armor Fund, detailed some of the mania around gold right now, warning of a bubble in the precious metal, in an email.
“I’ve been bullish on gold for years. But what I’m seeing now keeps me up at night,” he wrote. “This is what worries me: everyone is talking about how risky stocks are, how we are living in a bubble. But gold? Gold has become a risk-free trade. No one questions whether it is noble or not. This is exactly the time you should doubt it.”
Physical gold buying has reached feverish levels, Tejay added, citing tales of lines around the block in the middle of the day at a prominent gold dealer in Sydney. “When people line up in the streets to buy an asset, when the narrative becomes that one-sided, when the trade gets that crowded – that’s your signal. I don’t care what the asset is. That’s how manias end.”
Despite the recent bump, some believe the rally could continue. Political uncertainty, rising government debt levels and central bank purchases should continue to push prices higher to $4,700, representing another 15% upside from current levels, Ulrike Hofmann-Burchardy, chief investment officer for the Americas and global head of equities at UBS Global Wealth Management, said in a note on Wednesday.
Source: Market intelligence platform IndexBox
