Gold's Value Without Fear & Inflation (GLD, GDX, ABX, GFI, GG, NEM)

The recent move in gold may be saying something about how to value the commodity in an environment of low inflation and in an environment where fear brings less of a premium.  The London gold price today is down around $920/ounce. That’s about $25/ounce lower than yesterday’s close and gold had been down about $30/ounce earlier.  In fact, that decline reflects what may be a topping trend in gold prices for the last 30 days.  For the past year gold prices have trended upward, but the last thirty days have turned down. The SPDR Gold Shares (NYSE: GLD) ETF is almost flat for the past 30 days and for the past year. The Market Vectors Gold Miners Index (NYSE: GDX) is down about 20% for the year and about flat for the last 30 days.

Equity prices have rebounded more than sharply in just the last two weeks, after falling about 25% since the beginning of the year. Equities are now off less than 10% from the first of the year.

Gold prices rose as investors looked at the precious metal as a last hedge against a collapsing market. Then, the US government decided to print trillions of dollars of new money in an effort to give the US and global economies a shot in the arm. That produced inflation fears, which boosted gold’s price yet again.  Officials keep talking down future inflation even if many traders worry about what lies ahead on that front.

What appears to be happening now is that confidence in equities is building again. If investors aren’t particularly worried about finding a safe haven or aren’t scared of inflation, then there is less interest in holding gold.

Gold miners Barrick Gold Corporation (NYSE:ABX), Gold Fields Ltd. (NYSE:GFI), Goldcorp Inc. (NYSE:GG), and Newmont Mining Corporation (NYSE:NEM) are all from 2%-4% down this morning. This of course is after many of these have run up 20% in trhe last five days as equities suddenly came back in high favor.  The Gold Miners Index is off more than 3.5%, and the Gold Shares ETF is off more than 1.5%.

Paul Ausick
March 24, 2009