Gold: It’s Just Yellow Metal

Henry Blodget said it perfectly in an article published on Thursday (“Gold Prices Collapse As Everyone Remembers It’s Just Yellow Metal”). Now that the financial crisis is over and the U.S. economy is normalizing (albeit slowly), gold is no longer an asset class that makes much sense to many who have loved it in the recent past. Gold has no inherent intrinsic value, so buyers are merely hoping that others will buy it from them at a later date for more than they initially paid. There is no claim on any assets, which could increase in value over time (unlike a share of stock which represents a piece of ownership in a money-making corporation). Some people say gold is a currency, and yet you cannot deposit it into your checking account or use it to buy goods at your local store.

In fact, the recent strength in the U.S. stock market, coupled with severe weakness in gold prices, has resulted in stocks now having beaten gold since 2009. It took some time, but fundamentals do matter again. See the chart below:

gld-vs-spx