Gold can't catch a bid. We hear a million reasons why: The Federal Reserve wants interest rates lower, the dollar is strong, the chaos in Europe is over, China's stabilized.
I have to tell you that every one of those is a pile of hooey. Gold, using the SPDR Gold Trust (GLD) as the proxy, has now gone from $184 down to $159 from mid-2011 until now. During that period, we did have chaos overseas. But we also had a strong dollar and a dovish Fed. During the previous 12 years we saw all of these circumstances that are now being credited for gold's weakness -- and the precious metal rose every year.
I stand in defense of owning gold. I think we're seeing a long-awaited pullback, in part because it -- again, via the GLD -- took off like a rocket from the $140 level. It's now stepping back in a methodical way that, if it were a stock, would have us salivating for the selloff.
More important, when it comes to gold, I always come back to simple economics. No matter which gold company I listen to -- be it the South African golds, the Canadian or the U.S. golds, the finding costs continue to go up, the pollution rules continue to get tougher and the veins keep getting smaller.
Now, it is true that, at given times, we see some serious selling in the metal. We have to expect that the European love affair with gold has probably cooled, as the chaos has certainly diminished. The inflation scare in China has certainly been tamped. The demand in the U.S., which had never been off the charts, now faces tremendous competition from real estate.
Let's face it, though. We are in an experimental phase of monetary policy all over the globe. There are countries trying to reignite growth by driving down their currencies' value, with Japan the latest in a long line of nations trying to change their fortunes in that manner. Countries and continents are printing money left and right. Could anything make you more wary of the U.S. dollar than the Fed's policy of buying 80% of U.S. Treasury bonds, which our nation is issuing simply because we refuse to make any serious cuts in spending? Or how about the euro? Here, despite some interesting change in sentiment, countries without it are standing behind the currency with full faith and credit.
So you have plenty of reasons to want gold as your default currency. Plus, it isn't as if gold's been in a bear market, for heaven's sake. 12 years is a pretty long run.
Finally, what matters more than anything else in the world is the failure to find a huge new field of gold. Every time I think it has to happen, I am disappointed with the results, or with the ability to get it out of the ground without much effort.
I hope gold comes down more so I can recommend it hard and get through to the people who haven't listened during my eight-year attempt to get it into everyone's portfolio.