Is gold still an attractive investment?

Last week's string of positive U.S. economic data once again drawing attention to the direction of gold prices and what could trigger the next move for the precious metal

Nov 11, 2013 @ 1:28 pm

By Jeff Benjamin

Last week's string of positive U.S. economic data is once again drawing attention to the direction of gold prices and what could trigger the next move for the precious metal.

With the price of gold now hovering around $1,280 an ounce, reflecting a 22% drop from the start of the year, the stronger economic growth and employment reports released last Friday wouldn't normally a make for a bullish outlook for the traditionally safe-haven asset.

(MORE: Is gold becoming a good hedge against market uncertainty?)

"The further we get from the credit crisis, the less fear there is out there," said Douglas Coté, chief investment strategist at ING U.S. Investment Management.

Mr. Coté, who was bearish on gold even when it was spiking to $1,900 two years ago, pointed out that the closer the Federal Reserve Board of Governors gets to reducing its $85 billion-per-month pace of quantitative easing, the worse the outlook gets for gold prices.

“I'm bearish on gold because I don't even see it as a viable separate asset class for individual investors,” he said. “Tapering is going to be another sign that we're getting back to normal, and if gold is a fear trade, then getting back to normal is really bad for gold.”

But as part of an trading strategy, the falling price of the precious metal could be getting close to attractive levels, according to Uri Landesman, president of the hedge fund Platinum Partners.

“Right now, I see gold trading in a channel of between $1,200 and $1,500, and I see more upside than I do downside,” he said. “At the $1,200-to-$1,220 range, I'd be an enthusiastic buyer of gold, and even at the current price, it's reasonably attractive.”

Mr. Landesman acknowledges that positive economic data, which last week included numbers showing the economy growing at 2.8% and a surprisingly positive employment report, doesn't usually bode well for an asset such as gold that often benefits from a flight to quality.

“But if the stock market starts correcting, gold could be attractive for trading non-correlated to stocks,” he said.

For Janet Briaud, president and founder of Briaud Financial Advisors, gold is neither part of a trading strategy or something to run from.

Her clients all have gold allocations in the 5% range, but she admits that the recent “negative psychology around gold” has muddied the asset's value in a portfolio.

“Right now, the market is totally about equities and that has to do with quantitative easing, but it also has to do with the confidence in the markets,” Ms. Briaud said. “We took a little gold out of our portfolios a little while ago, but we still have our base positions.”

Ms. Briaud said that she isn't surprised by gold's decline from the $1,900 range two years ago because “the momentum buyers left it in weak hands.”

At current price levels, she believes most of the speculators that rode the price up have since been washed out of the market.

“My guess is a lot of that is gone now, and there are not a lot of buyers for gold because people don't think they need safe haven assets right now,” Ms. Briaud said. “The belief is, a stronger economy is good for stocks, so people figure why invest in something like gold?”

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