Gold prices were flat Wednesday as the buying hype surrounding
the Federal Reserve's third round of quantitative easing faded
and the metal lost appeal as a safe haven amid an outlook for
weak corporate earnings and inflation.
Spot gold fell 0.07% to $1,763.70 an ounce.SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, eased 0.10% to 170.82
as it fell for a fourth day straight.
"With the QE impact having run its course, I am not seeing the
gold trade benefiting over the next couple of years," said Andrew
Hill, who manages $33 million in assets as co-founder of Andrew
Hill Investment Advisors in Naples, Fla.
"Also, the hype- and fear-based advertising for gold seems
much like the real estate market six years ago, although that is
not enough of a reason to sell your gold holdings."
He's holding 95% of his assets in stocks, with no
SPDR S&P 500 (
) fell 0.61% to 143.33, kissing price support at its 50-day
PowerShares DB U.S. Dollar Index Bullish (
) slipped 0.23% to 21.90. It's been trading below its 200-day
moving average for six weeks, which is very bearish.
GLD has outpaced SPY the past three months by 4 percentage
points, so some profit-taking would be normal. The gold bears
contend QE3 can't spark inflation enough to fuel gold prices. The
program's $40 billion a month in mortgage-backed securities
purchases is too little to make a difference in a market worth
What's more, money flying off the printing press is sitting in
banks and not being lent out. Companies and consumers are
deleveraging or paying back loans instead of borrowing more
"Gold is only a place to hide when people think the world
really will end, or there is a huge expectation of inflation; we
aren't seeing that now," said Lee Munson, chief investment
officer at Portfolio LLC in Albuquerque, N.M. "Slow to no growth
doesn't give gold the juice it needs."
Gold hasn't been a safe haven and has moved in sync with risk
assets. It corrected sharply after QE1 and QE2 as traders opted
for cash. It currently has a 0.82 correlation with SPY. A reading
of 1 means perfect correlation and -1 means no correlation.
SPY has entered a correction on a tide of negative corporate
pre-announcements, owing to slowing overseas demand.
Third-quarter earnings are projected to fall 2% year over year,
marking the first quarterly drop since 2009.
"We are about to enter the first deflationary downturn in 80
years," said David Hunter, chief market strategist at KCCI Ltd.
in Boston. "We have seen the highs of the recent gold rally and
it is now beginning to roll over. Like all commodities in a
deflationary bust, it will sell off sharply."
He projects gold's price will crash 43% from its current level
to $1,000 an ounce, which would translate to about $100 a share
On the other hand, gold has carved a bullish chart pattern.
GLD has formed a four-weeks-tight pattern in which its weekly
closes are within 1% of the prior week's close four straight
"For now, this consolidation still looks healthy," said Cyril
Berkouk, a technical analyst at Trading Central. With the
gold-to-S&P 500 price ratio rising at a healthy clip and as
long as GLD holds above price support at its May peak of $162 a
share, its chart looks bullish, Berkouk added.