Is the Bull Market in Gold Bullion Kaput?

Gold bugs are fretting. Although SPDR Gold Trust (NYSE:GLD) has been up for 11 consecutive years, 2012 has been a bumpy ride.

Since the beginning of the year, gold has recorded a gain of around 6.25%, which is less than the SPDR S&P 500 ETF (NYSE:SPY) surge of 11.76%. Likewise, the beloved yellow metal is even underperforming broader ETFS Physical Precious Metals (NYSEA:GLTR) exchange-traded products (ETPs), which include ETS Silver Trust (NYSE:SIVR), ETS Physical Platinum (NYSE:PPLT) and ETS Physical Palladium (NYSE:PALL).

From a technical angle, gold now trades below both its 50 and 200 simple day moving average, which basically means abandon ship. Is the bull market in gold over?

A Lost Decade, and Some Perspective

The 2000-2010 performance for the S&P 500 has been called the lost decade because buy-and-hold investors of this particular stock index fared worse than i Shares Barclay’s Aggregate Bond Fund (NYSE:AGG), along with other major asset classes, such as iShares Gold Trust (NYSE:IAU).

Investors who owned dividend-focused stock ETFs, such as the iShares Dow Jones U.S. Select Dividend Index Fund (NYSE:DVY) or Vanguard MSCI Emerging Markets (NYSE:VWO) did much better than S&P 500 investors. Going back to 2000, a dividend-stock strategy resulted in average gains of almost 8%.

Gold bullion began 2000 at $318.70 per ounce and closed 348% higher, at $1,421.40 per ounce, at the end of 2010. Amazing as gold’s bullish run has been, it still doesn’t solve one of gold’s biggest shortcomings: It produces no income.

The $6.6 Trillion Question

A shortage of retirement income is one of the biggest predicaments facing baby boomers. The Center for Retirement Research at Boston College pegs it as a $6.6 trillion conundrum. The center’s analysis included major sources of retirement income, such as Social Security, traditional pension plans, personal savings and 401(k) retirement plans.

What have investors been doing to fix this? Instead of tackling this $6.6 trillion problem, too many retirees have been concentrating their investments in gold — an asset that produces zero income.

What does this mean? It means that any substantial decrease in gold prices will undoubtedly massacre these unsuspecting folks. And while they wait for gold prices to recover, they’ll get nothing in exchange for waiting. At least S&P 500 investors got dividends during their lost decade!

(For anyone who doesn’t think a decline in gold prices is problematic, tell that to the people who bought gold at $834 per ounce in 1980 and sat on dead money over the next 27 years.)

A Better Income Strategy

So, physical bullion generates no income. And because gold produces zero cash flow, it presents a major conundrum for retirees or anyone whose main investment goal is to generate more income.

While owning physical gold is psychologically comforting, and while it may hedge against future inflation or a breakdown in the paper currency, it isn’t the panacea.

Last time I checked, gold isn’t edible. (Gold shavings don’t count.)

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