As Market Soars, Gold Prices Stagnate
Stocks are in rarefied air. The Dow Jones Industrial Average hit another new high yesterday. The S&P 500 is close to record levels. The VIX dipped to a six-year low yesterday. These are swinging times for the markets. Which is part of why gold prices are stagnating. When times are good and investors aren’t afraid (hence the low “fear gauge” rating), they no longer have a need for gold. Gold is a safe haven investors typically flock to during times of great uncertainty. While there’s plenty to be uncertain about these days – Will the sequestration cuts take effect? Are we headed for inflation ? How can Europe get out of this sovereign debt mess? – investors seem to have tuned it all out . They have no use for gold…for now. That’s why gold prices have fallen off more than 8% in the last four months as stocks have risen close to 13%. Gold dipped below about a month ago. A few days later, stocks began what entering the day was a streak of nine out of 10 winning sessions. My colleague Kevin McElroy , Wyatt Research’s resident commodities experts, described what we’re seeing: “Think about it this way: if gold is a proxy for all commodities, and all commodities are getting cheaper, you'd expect the profit margins of businesses to rise – since they're spending less on the raw materials they need,” Kevin said. “Not only gold, but oil, coal, gas, iron, copper – if all these commodities get more expensive, most businesses would expect to have lower profits, since almost (if not all) businesses have significant costs related to commodities.” Oil is down to $92.86 after touching $98 in late February. Natural gas prices have declined 6.5% since late November. And copper and silver have fallen off the table since the beginning of February. Don’t expect these commodities to stay down long. Nearly everyone expects a market correction in the coming weeks – if not days. Once that starts to happen, some investors may panic and think the sky is falling – and start flooding into commodities again. Gold is stuck in the mud right now. But that shouldn’t last much longer.
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