If you want to stretch definitions (just a little) then gold has been the biggest underperforming currency in the up to and during the US government shutdown and debt ceiling debacle. The downtrend through both September and early October is pretty unique in as much that it’s not repeated in any other major currency or asset class. Why’s this the case?
In summary, this is part of a bigger picture for gold, which I’ve written about previously (see “Far from over for gold” and “Good times over for gold”). Whilst many have struggled to accept this is the case (helped by a lack of valuation metrics for gold), the bull market for gold is well and truly over and prices are heading for their first annual decline for 12 years.
As such, the liquidation of speculative positions that was evident in the second quarter has continued. Holdings of gold within global ETF holdings have continued to fall. The near 40% decline seen since their peak in late 2012 is nearly doubled the decline seen in spot prices over the same period, underlining the extent to which underlying investors have been throwing in the towel.
This also explains why gold has failed to react to other events. The fall in global real interest rates (normally associated with a rise in hold prices) over this period has failed to offer support and it’s also pretty unprecedented to see a period when hold has fallen so much in whatever currency it is valued in.
With gold having peaked over 2 years ago (down 33% from this level), combined with the strong liquidation seen over the past two quarters, then it’s safe to say that the worst is probably over for the gold price, with this perception gaining credence should the 1,180 low seen earlier this year hold in place.