Breakout

Avoid gold: The last correction took 20 years

Breakout

After gaining more than 700% in the decade following the 9/11 Terrorists attacks, Gold (GLD) has since fallen about 40% from the all time high it hit 15 months ago, with most of that happening in 2013. In fact, the last 12 months have been the second most bruising period for the metal in over a century, bested only by the 32% slump of 1981.

This type of decline is not only rare, but tempting, as many bottom-fishing investors are starting see value in gold, although David Nelson, chief strategist at Belpointe Advisors is not one of them.

“I can’t find a lot of reasons to like gold,” Nelson says in the attached video, citing three reasons for his continued caution.

Related: Short Gold Until It Hits $1,000 Trader Says

“The whole reason people wanted to buy it has been blown out of the wate,r” Nelson says of an economy that’s closer to deflating than hyper inflating. He also says the cycles surrounding the metal tend to be long and that investors looking to catch a rebound comparable to the retreat could be in for a surprise.

“The last time gold peaked was around 1980 and it took more than 20 years for it to bottom,” he says.  “We’re only a couple of years into this so you could be five, six, seven, even a decade early.”

He also worries the metal’s appeal as a hedge against devaluation of the dollar has taken a hit too, thanks in no small part to the advent of virtual currencies like Bitcoin, or other alternative payment systems being experimented with by large banks.

To be sure, the run-up in gold was partly fueled by the launch of the SPDR Gold ETF which made it cheaper and easier than ever to buy, hold, or sell this precious metal. Yet today, Nelson says, this very same phenomenon is having the inverse effect and points out that gold funds have now become ‘’net sellers” in order to cover a deluge of demand from investors who now want out.

Related: 2013 market movers: The biggest winners and losers

It won’t be all down for Gold from here on, Nelson predicts. But it won’t be easy either.

“I think there will be some big spikes in here and if you’re a good trader, God bless ya,” he says, adding that for him, the temptation to catch gold still doesn’t make sense. 

 

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