Demand Still Soft
Many goldbugs like to focus on demand for gold jewelry in Asia and coins from the U.S. Mint. However, despite increased demand for these market segments, overall demand continues to drop.
The World Gold Council estimated that in Q1 (its latest data), overall demand dropped 13%. That trend seems to have continued in Q2 based on big redemptions at ETFs like GLD and stable-but-not-dramatic growth in the overseas luxury market. The latest headwinds include “lacking” Asia demand and import restrictions in India stemming demand there.
It’s not like nobody is buying gold, and the precious metal is always in favor somewhere. But the buyers just aren’t as eager as the sellers in this environment.
It’s hard for any investor to consider gold a risk-off investment again after the April rout in prices and the subsequent plunge below $1,200 in late June.
And even if you could make that case, why would you choose a defensive strategy with the S&P up about 18% year-to-date in 2013?
Even if the market does see a mild correction, which could happen after some lackluster earnings lately, it’s hard to imagine global investors getting so jaded with U.S. equities that they plow their money into gold once more.
Like it or lump it, gold is a divisive asset class and the investment is driven largely by emotional arguments.
After all, it’s not like there is much practical use for gold (barring the limited industrial and technological applications for the commodity, of course). Thus, the market is based inherently on speculation, greed, fear or whatever other sentiment rules the day.
Right now, the sentiment is decidedly against gold. And even if you don’t believe the previous arguments against gold and can offer up some rational counterpoints to make the bullish case, that may not matter.
Because right now, the bears are winning the emotional argument — and that counts for a great deal when it comes to gold.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.