Gold Continues Its Slide

The price of gold has now reached a six-week low; as I write this post, spot gold's at US$1,092.50 after dipping to just over $1,085 at 8 AM ET. That new, lower trading range talked about in the press is becoming a reality. The two-month tear that began in Halloween is about 80% reversed.

Needless to say, the U.S. dollar index has risen. And, I need say, U.S. stock futures have risen too. As one day turns into another, a negative correlation between gold and U.S. stocks becomes more firmly established.

This U.S. dollar chart shows the greenback is higher than it was as of the end of October:



and shows what appears to be a solid trend reversal. It looks like the oft-mentioned carry trade is reversing, as the U.S. economy recovers and the U.S. dollar shows it's not obsolete as a safe-haven destination. Gold isn't widely seen as the ultimate safe haven, at least as of yet.

A Wall Street Journal report ascribes gold's latest reversal to strength in the greenback, and quotes another expert as saying that gold could trade between $1050 and $1080 as the end of the year approaches. Still, according to the report, the SPDR Gold Trust's gold holdings increased Monday. There's evidently buying in the face of the recent weakness.


Gold's had quite a drop recently, and yet I've encountered little comment about the gold bubble bursting. The people who claimed that gold's been in a bubble should be crowing over the decline, or saying the recent slump is evidence that they were right about the frothiness. Gold's decline over the last three weeks has been steep, but it's also been orderly. For precedent-hunters, I point to the decline from about $730 to about $590 in 2006, from late April to early June. The gold price dropped about 25% in that interim, and stayed in a $600-$700 trading range for the next fourteen months. [The present decline's been about 12% as of now.] Only a resurgence in U.S. inflation got the bull marker resuming in August '07-March '08.

We could have seen a mini-bubble in gold, or froth in the midst of an underlying bullish trend.