Why gold is turning into lead

The sudden plunge in prices has stumped many investors, but you can find any number of theories to explain it.

By Jonathan Berr Apr 15, 2013 2:51PM
Image: Gold Bars (© Stockbyte/SuperStock)Why are investors suddenly dropping gold as if it were deadly? There are just as many theories as there are experts offering them.

One thing is for sure -- gold's allure has been tarnished for many investors. Futures for June delivery settled at $1,361.10 an ounce on the Comex, a 9.3% decline on the day and the biggest drop since 1980. At one point, prices slid to $1,355.30, the lowest since February 2011.
 
Writing in Quartz, Matt Phillips offers five reasons for why gold has become so toxic, ranging from increasing supply to worries about a slowdown in China's economy to a call by Goldman Sachs (GS) to short the commodity. But he freely admits that he found none of them especially convincing. 

Ira Epstein, the director of the Ira Epstein division at Linn Group, is quoted by The Wall Street Journal saying gold is losing its allure for investors as the stock market surges.

Peter Stanley, an analyst with Morgan Stanley in Australia, argued in a Bloomberg article that the market was reacting to the prospects that cash-strapped members of the eurozone would have to sell some of their gold holdings and flood the market.

Dominic Schnider, an analyst at UBS Wealth Management, told Reuters that panic selling is being triggered by indications from the Federal Reserve that it would reduce it quantitative easing program, which has helped fuel the recent run-up in gold prices.

Some, all or none of these theories may be proven right.

Gold's sell-off also underscores investing risks that people with gold fever often ignore. First, experts have long dismissed the idea that gold is a good long-term hedge against inflation or fluctuations in currency values. Many investors also don't realize that physical gold, including exchange-traded funds like the SPDR Gold Shares (GLD) that hold gold, is considered a "collectible" for tax purposes and is taxed at a higher rate than other forms of investing.

Gold also has for years gone through periods of booms, such as the 650% rise between 1999 and 2011, and busts. Moreover, as investors become more convinced of their financial futures, they tend to look beyond traditional safe havens such as gold.

As Joe Weisenthal recently noted in Business Insider, this can be viewed as good news because "money flowing into gold-related assets represents a belief that rocks (however shiny they are) are a better place to invest than human endeavors (like stocks)."

Of course, gold bugs probably still see things differently.

Jonathan Berr owns gold through an exchange-traded fund. Follow him on Twitter @jdberr.

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38Comments
Apr 15, 2013 5:14PM
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As a long term investment, holding physical gold and/or silver is better than holding dollars, or at least it has been over the last hundred years or so.
Apr 15, 2013 5:23PM
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I'd rather have lead in my hands than dollars.
Apr 15, 2013 9:51PM
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Gold is very cyclical, if you got it sell it, it is going much lower.  Re-buy when it is back around $700/oz.
Apr 15, 2013 11:31PM
Apr 15, 2013 7:38PM
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It'll come back. Gold is still gold.
Apr 16, 2013 7:55AM
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Ah yes, good old lead, America's past - America's future. As a well known American businessman once said - "My rackets are run on strictly American lines and they're going to stay that way. I have built my organization upon fear."
Apr 15, 2013 11:24PM
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The clownshoes on Wall Street have finally awakened to the fact that there has been virtually no recovery. From their high rise perches in lower Manhattan and with the luxury the newly printed money has afforded them their view of the real economy has been clouded. A dose of reality has struck with the data of recent days. There will soon be another reality shock when the realization that the electronic creation of money where the FED injects the correct string of ones and zeros onto the balance sheet of the banks, it has created nothing of value, nothing of utility, They are only destroying the value of the currency. As the first realization takes hold markets will plummet. The FEDs only response will be to send ever longer strings of data to the bank's balance sheets. They can and if they feel the need will create an infinite amount of digital money. In a finite world. 
Apr 16, 2013 7:31AM
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It makes sense, that's why you aren't getting it. "Most seniors are cash strapped..." No they aren't. Most seniors never budgeted in their working years and live a form of ADHD lifestyle in retirement. "Are you saying old people have too much cash?" Yes. They live destitute retirement lives with their entire nest egg stuck with some retirement planner broker. Tell me what good money is if you die before using it? Young people today are stuck with bad big business platforms for employment. YOU know nothing about what employment with these shady scams has evolved to and yet... your retirement planner has YOU invested in what's killing America! Remember, never in history has business been this RICH. YOU are doing it because THEY don't conduct real business any longer, they invest. Save the nation... learn to budget and enjoy life, quit hoarding and invest in your city and neighborhood because it's where you live.
Apr 16, 2013 5:22AM
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First of all, Gold isn't turning into lead. A ways to go before that claim can be made.

Our Seniors were born in a time where Jobs became more secure along with great pension plans for them. They had the benefit of a higher wage that comes with being on the job for a long long time. The new generations are facing  entirely different issues. Facing them due to lack of enlightenment of planning for not just their(seniors)  future but the future of their kids and their kids kids. It was all about how I got mine, not go get yours. That's hard to do when that generation didn't fight the outsourcing of Jobs nor stop the Money Printing when it first started. Aka the hit they now face due to Uncle Ben. They run out and rally for more guns but when Uncle Ben ran the Printing Presses, where were they?

The typical Senior has paid off their home and and if planned for retirement properly, collect at least two income checks. Sure, interest rates don't help savings but compared to those with none, they are much better off. The most likely derailment would be major health issues. Otherwise they are far better off than everyone else. Guess how Seniors would be doing if they invested early in Gold. Even if you only dollar cost Average over time. Now folks are stuck with Stocks that will have little value long-term when the Uncle Ben Gravy Train ends. If you never take profits, all you have is a worthless piece of paper.

Apr 15, 2013 9:43PM
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Does this have anything to do with Germany moving all of its gold back to the homeland from the US?
Apr 15, 2013 8:20PM
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Makes no sense right now.  Market isn't that strong, gold should still be much higher.
Apr 15, 2013 9:32PM
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Why the heck do people worry about gold?Just buy great stocks like I do and enjoy

my often dividend checks.

Apr 16, 2013 2:10AM
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Crash is coming! Stocks are a bubble, gold is a bubble, bonds are a bubble. Cash is the only place to be! Google KONDRATIEFF WAVE DOUBLE DIP to understand the risks in the financial markets. Do not jump into the fire from the frying pan. Contrary to mainstream media, gold is not a safe heaven. But stocks are not any better? Why? Because economy is running on borrowed money, borrowed time. For many decades, people and countries and companies borrowed US dollars and they promised to pay back US dollars. Debt is the problem and debt is denominated in US dollars. What Bernanke prints is nothing compared to the total debt that is out there! This is why he prints trillions and you don't see inflation! Borrowers must find US dollars to pay debt, not gold, not stocks! Keep your dollars safe. It is going to be a deflationary crash! There is nowhere to diversify, there is nowhere to hide!
Apr 15, 2013 9:25PM
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You religious hillbillies andnyour gold got what you had coming.  Signed- Barack Obama
Apr 15, 2013 8:30PM
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I don't care. I've got my gold, my stock of guns and MREs, my transistor radio and a strategically located, easily defended cave to hang out in.

I can afford to wait for the upcoming international financial collapse, when I can assure you gold will be worth $100 thousand an ounce.

P.S. I blame Obama.





Apr 15, 2013 9:16PM
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It doesn't really matter what organized investment you are in. There are too many investors so once the bandwagon gets over-crowded, the investment will sour. The world struggles from too many seniors with hoarded cash crashing and compromising the current economy. They all want income. For what? Live well but beyond that you are a pariah. You can thumb this post down adnauseum, but the fact is- gold dropped heavily today. Stocks started what will be a significant descent over the next few months. Your retirements areas will be taxed by a stifling of resources and you can likely guess that without any subsequent generations affording retirement, you got nothing. YOU could be recovering your own town and funding the businesses that need to exist to take down the business platforms blockading jobs and making false elitists. Sobriety never tastes good until you wash all that crusty pompous arrogant asss breath out of your lungs and breathe in some commonsense. We are crashing because seniors made it so. Stop complaining about the government, it's YOUR money causing this. YOU need a better plan. Oh... and get your butts out of Wal-Mart and spend some of that on more than senior coffee at Tim Hortons. You are cancer to us all until you do.
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