Gold hit $1080 per ounce Sunday night which was the lowest price level since February 2010. Gold in U.S. dollar (USD) terms has a three-year annualized return of -11.1%. It is no wonder that money managers currently carry the smallest net long positions in gold. A Bloomberg headline on Sunday read, “Gold Speculators Least Bullish on Record as Rate Rise Approaches.” The reason why gold is failing in its role as a safe haven asset class is because the USD is the main safe haven trade. Furthermore, macroeconomic factors favoring a stronger dollar due to rising rates is exacerbating the disdain for gold funded in USD.
Is Gold “out of favor?” I can’t think of another asset that is more “out of favor,” except maybe Greek bonds. But aren’t investors supposed to be contrarian and invest in “out of favor” assets? This type of value investing is often the hardest but more often than not the most profitable. I certainly don’t know where the bottom of gold is but China, India, Russia and other countries continue to buy gold in record amounts.
There will be a time again when gold shines in the investment world and perhaps along with Greek bonds.
This article was written by Treesdale Partners, Portfolio Manager of the AdvisorShares Gartman Gold/Euro ETF (NYSE Arca: GEUR) and AdvisorShares Gartman Gold/Yen ETF (NYSE Arca: GYEN).