Oh, Gold, our old friend. We posted quite a bit last month about its rapid ascent and subsequent drawback from new all-time highs, but anyone who did not heed our warnings about the yellow metal’s volatility is likely feeling the pain today, with prices down nearly 11% from its all-time high close of $1891.90 on August 22nd. Much of these losses have transpired over the past two weeks, with the August 9th close resting at $1859.50.
DISCLAIMER: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Why the massive sell-off? Frankly, it’s anyone’s guess at this point. There could be a multitude of contributing factors playing a role. The announcement of Operation: Twist by the Fed earlier this week sent treasuries through the roof, framing them as the “safer” investment for people lusting after stability. This shift in sentiment could be taking its toll on the “sentimental” value of Gold. Others have speculated that selling by banks may be hurting pricing, but with European bank gold sales dipping ever lower, this doesn’t seem to be the case either. Some believe that traders, seeking to cover losses elsewhere, are selling off their big winners- and Gold was in that category for most until recently. But at the end of the day, the why is not necessarily as important as the numbers for investors seeking safe harbor in the storm- and they ain’t pretty.
It’s about more than losses, though. It’s about volatility. From January 3rd to August 31st, Gold’s average daily price range, or percent difference between high and low for the day, was 1.56%. In the past month, the average price range has been nearly double that, at 2.93%. Investors hungry for the barbarous relic need to look beyond flashy ads promising a “safe” investment in gold, and think about whether they can stomach that kind of movement in price.
Bottom line? Gold is likely not the “flight to safety” investment that people make it out to be. There is no guaranteed return, no matter what anyone tells you, and its rapid price moves are enough to make anyone queasy. Think before you leap.