Gold has bounced smartly back to near $1,350 an ounce, but remains stuck in the forgotten world between breaking down and breaking out. It has a floor around $1,250 and ceiling near $1,425. A nice trading range if you’re inclined, but not much fun for anyone who bought gold over the last couple years.
“Gold is usually inversely related to the dollar. The dollar index is at 8 month lows,” Heather Hughes of Sun America told me last week in the attached video. “As we just saw, the debt ceiling debacle was delayed for three or four months and the Federal Reserve still has its foot on the gas. It seems like inflation may be looming which is positive for gold.”
Hughes is exactly right yet here we are with gold well into bear market territory, down some 30% from all-time highs. Gold is on course to post its first down year in more than a decade. The only real question is whether or not this is simply an extended pause after a tremendous run or the beginning of an extended nightmare for gold’s legions of long-term investors.
Hughes says most people should keep gold their portfolios but suggests it might be time to think about it is as hedge rather than a speculative vehicle. “Hang on to gold for now as a hedge or a safe haven…some sort of insurance against a potential default or an Armageddon-type of situation.”
From a fundamental perspective, not much has changed for gold, at least as it relates to the U.S. economy. The Fed is printing $85 billion a month and another debt ceiling mess is always around the corner. Nothing has changed. For battered gold investors that’s both the good and bad news.
