Gold prices hit a five year low yesterday. Many gold shares on the other hand hit decade year lows or in the case of one of the largest gold miners in the world, Barrick Gold Corp. of Canada share prices fell to levels not seen since the 1990’s!
Yesterday’s sell-off can conveniently be blamed on the Chinese who revealed less then steller gold holdings on Friday. Followed with an investor dumping $1.7 billion worth of gold shortly after market opening in Asia causing a “flash crash” of a kind in gold prices which dropped 4% in a matter of seconds.
Gold has traditionally been a good hedge against inflation and a weaker U.S. dollar. Unfortunately neither scenarios are at play with the U.S. dollar acting like a runaway train and Europe battling deflation risks.
But you would think the EU/Greek debt crisis and the Chinese stock market sell-off would have diverted some assets to the safety of gold over past few weeks. Especially considering gold prices are 40% off their peak of $1,900 seen in 2011 and represent good relative value.
Could there be a more serious underlying issue for gold? As an equity investor in gold miners and explorers, I’m concerned about the long-term supply demand for gold. I’m been underweight gold in our portfolios but haven’t abandoned the sector (yet). I see a great short-term trading opportunity in gold shares for active investors. But I also see cracks in the long-term viability of gold as a safe-haven.