The price of spot gold rose to its highest level in seven days Tuesday, to $1,260 an ounce, but that doesn’t mean much to Yoni Jacobs, chief investment strategist at Chart Prophet Capital.
Jacobs said the reasons for gold’s being considered a safe haven—emerging markets, gold mining stocks, the dollar and inflation—are long gone.
For example, conventional thinking about the relationship between gold prices and emerging markets is that, as wealth grows, consumers will have more money to buy gold.
“The problem is, if you just paid attention to the stock prices or the stock markets of those countries, you’d see that they’re slowing down,” Jacobs said. “The S&P 500 is up 22 percent in the past year, whereas the Shanghai Index in China is up only 4 percent in the same period."
India hasn’t hit a new high since November 2010, and the Shanghai Composite hasn’t hit one since August 2009.
Gold miners are a leading indicator because they generally move before the commodity itself, according to Jacobs. In 2011, when gold was on the rise, miners started going sideways.
“That was a warning that gold was probably going to follow,” he said.
As of now, the gold miner’s index is down over 47 percent for the past 52 weeks. Miners can bounce if the sector does, he said, but the good times won’t last.
“Eventually, overspeculation, overexpansion, large debt loads and poor performance will lead to a few bankruptcies in the sector,” Jacobs said.
There is usually an inverse relationship between the U.S. dollar and the price of gold: As the dollar falls, gold rises. He noted that the dollar is up 17 percent since May 2011, so the expectation is that gold will remain on the downside.
Finally, low inflation, or even deflation, can be negative for all asset classes, including gold.
Buying gold is not a smart move, Jacobs said.
“It’s a losing trade, chasing a losing investment, fighting a losing trend. If you really believe in a bounce, don’t buy gold here.” Other asset classes, such as natural gas, will also bounce, he said.
Jacobs projected that gold will fall to $700 in the next three to five years.
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- Commodity Markets