Is Gold Overrated?Aug 14, 2012
Global recession? Euro debt crisis? Apparently, gold never got the memo and the underperformance of gold vs. major asset classes is astonishing and telling about its actual trend.
Gold has been touted as the last true currency – but that doesn’t mean it will rise indefinitely or even maintain its value. In fact, compared to other major asset classes, gold has fallen.
Over the past year, gold has failed to beat global real estate (NYSEARCA:RWO) U.S. stocks (NYSEARCA:VTI), and long-term U.S. Treasuries (NYSEARCA:TLT). (See table below)
The biggest unpleasant surprise for gold investors might be this: Despite Europe’s sovereign debt crisis, Eurozone stocks (NYSEARCA:VGK) have outperformed gold by 10.23% over the past year!
Curiously, gold’s lackluster relative performance hasn’t stopped its cheerleaders from singing and dancing. HSBC forecasts $1,900 per ounce for gold by year end and Merrill Lynch predicted $2,000 with another round of Fed stimulus. Other pie in the sky gold forecasts – not worth mentioning are everywhere.
Silver has been one of the few asset classes that gold has managed to recently beat and a glance as the gold/silver ratio shows this.
The gold/silver ratio has surged ahead by 28% year-to-date, indicating that gold has performed better relative to silver.
Last year at this time, the gold/silver ratio was around 44. Back then it took just 44 ounces of silver (NYSEARCA:SLV) to purchase one ounce of gold (NYSEARCA:IAU), while today it takes approximately 57 ounces of silver.
Over the past year, gold has lost just 8.22% in value compared to silver’s loss of almost 30%.
The gold/silver ratio is a barometer used to measure the relative value of each metal versus the other. The 200-year average for the ratio is 37 to 1.
In summary, the buy-and-hold gold trade is not working right now. Put another way: Ignore the truth of gold’s actual trend to your own detriment.
The ETF Profit Strategy Newsletter provides important short and long-term support/resistance levels and seasonal trends on gold and other major asset classes along with directional advice and the corresponding trading strategies.
The SPDR Gold Trust (NYSEARCA:GLD) is the largest gold ETP and holds around 1,258 metric tons, according to Bloomberg.