Gold’s run done?

Gold compared to the S&P 500, 2002 to 2012

Gold compared to the S&P 500, 2002 to 2012

Gold has been getting hit hard over the past week since the most recent FOMC minutes indicate few signs of Quantitative Easing, part 3. In fact some are reporting that gold traders now are turning bearish for the first time in 2012. The chart above shows that over the past decade gold has risen an impressive 427%, compared to 29% for the S&P 500 so given recent declines it’s reasonable to ask – is the great gold bull market over?

Of course nobody can predict the future but since we’ve seen declines like this in price of gold before, I always find it instructive to follow the money. Since the onset of the Credit Crunch in 2007, we’ve seen massive flows of cash into (and in some cases, out of) gold. Who’s buying gold and who’s selling? The chart below shows net changes, in tonnes, of gold by the Central Banks of three different groups – the well known BRIC nations, the lesser known MIST countries and our reference point, the Group of Seven industrialised nations (aka G7). The table below breaks down who is buying and who is selling. We can see that while the BRIC and MIST nations are expanding their supply of gold the G7 has been holding steady, with the exception of France who, in an act reminiscent of Gordon Brown’s 1999 selling of the UK’s gold, has actually reduced their supply of gold by 10% and Germany a lesser amount (1%).

BRIC, MIST & G7 nations, % change in gold holdings since the Credit Crunch (Q1 2007)

BRIC, MIST & G7 nations, % change in gold holdings since the Credit Crunch (Q1 2007)

BRIC, MIST & G7 nations, % changes in gold since the credit crunch (Q1 2007)

BRIC, MIST & G7 nations, % change in gold holdings since the Credit Crunch (Q1 2007)

I’m still long both gold & silver and looking to add more at these price points. Some other bargain shoppers are out there as well, so until the G7 starts to reign in some of this incredibly large debt, I’d suggest keeping a good percentage of your wealth in metals. Ignore the short term fluctuations in price.

Comments are closed.