No doubt it’s been a difficult to be a goldbug lately. However, as a note from Ned Davis Research postulates, it could be much worse.
John LaForge and Warren Pies write
that from its peak in January 1980 through its trough in February of
1985, gold suffered 65.8% losses. So far in this cycle, it’s lost 35.7%
from its August 2011 peak, so if it were to follow its 1980s path, it
could easily slip below $700 an ounce.
There were a number of factors working against gold in the 1980s, but
notable among them was the strength of the U.S. dollar: It rose 54%
from January 1980 to February 1985, versus as basket of major
currencies. LaForge and Pies write that it’s not difficult to see how
the same pattern could play out again, weighing on gold. These waters
aren’t friendly to contrarian investors, who usually lose out when
betting against a rising dollar. Nor does it seem like a time for
bargain hunters in gold, if the price is in danger of falling
significantly more and pessimism hasn’t yet reached its peak.
They conclude: ”Gold is not worth additional capital at this point.
It is oversold, but is trending poorly. Like gold, the overall commodity
super-cycle looks to be dying.”
That’s likely not welcome news for gold ETFs, even as the SPDR Gold Trust (GLD) and Market Vectors Gold Miners (GDX) were already just about $1 from their 52-week lows on the last day of September.
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