Gold prices continued their decline this morning as the spot price fell below $1,100/ounce for the first time since 2010. Since hitting an all-time high of $1,923/ounce in 2011, gold prices are down about 42%.
The arguments for buying gold in earnest seem to be fewer and fewer. First and foremost, the dollar seems to have entered a powerful bull market of its own. Driven by factors such as weakness in the yen and euro, the end of QE, and the anticipation of higher interest rates, the dollar, – which bottomed in 2011 about the same time gold prices peaked, – has rocketed higher, corresponding with the precipitous drop in the price of gold:
Another argument for gold is that the US is running large budget deficits. However, after peaking at around 10% of GDP in 2009, the deficit has been steadily shrinking, driven by an improving economy, the winding down of two foreign wars, and other factors. God prices have reacted to this improvement in fiscal health by heading lower:
The bottom line is that the long bull market in gold since the turn of the century is probably over. While it’s hard to say if gold has reached a bottom, it seems there are no catalysts to propel it higher any time soon.