Odds against gold investing
The recent volatility in the gold market appears to be the result of its positive attributes as an asset class and December’s rebound in the U.S. dollar and bond yields, which will likely prolong the downturn for gold and gold equities.
Gold and gold stocks have always been driven by what Dundee Securities strategist Martin Roberge calls “economic oxygen” – expectations of economic reflation forces. The firm’s gold reflation gauge tries to capture this by monitoring the movement of U.S. money supply (M2), the U.S. dollar index, bond yields and gasoline prices.
Despite the fact that this gauge did not flag the spike in gold and gold stocks in November, it still argues for a cautious stance on bullion. The drop in M2 growth, rising bond yields and gasoline prices are signs that economic oxygen is contracting, Mr. Roberge said in a recent note.
The U.S. dollar’s depreciation in 2009 is not enough to outweigh the negative impact of these other three factors. What is particularly worrying is the divergence between M2 growth and the relative strength of gold equities.
“As quants, we want to play the probability table and for now, odds are against gold investing,” the strategist said. “We believe that energy stocks… are likely to benefit from gold equities’ money flows.”
See original here:
Odds against gold investing
