Is Gold's Party Over? (GLD, IAU)
Since 2000, gold bugs have had been laughing at the yellow metal's naysayers. Legendary investors including Warren Buffett and George Soros have taken turns criticizing gold, whether it be to say the precious metal is a bubble waiting to pop or to note gold really has no utility.
Even with an ample chorus of boo-birds weighing in, gold's ascent since 2000 when it traded around $300 an ounce has been nothing short of staggering. While gold is getting hammered today, the spot price is still around $1,650 an ounce as of this writing, meaning the yellow metal has surged more than fivefold since 2000.
Since its debut in late 2004, the SPDR Gold Shares (NYSE: GLD) has surged almost 260%, garnering $68.8 billion in assets under management along the way. That makes GLD the world's second-largest ETF behind the SPDR S&P 500 (NYSE: SPY). The iShares Gold Trust (NYSE: IAU) is no shrinking violet, either. That fund has gained nearly 277% since its 2005 debut and has raked in almost $9.7 billion in AUM along the way.
All nice superlatives, but with the way gold has been acting lately, it begs the question: Is the party over? The answer might be "Not quite yet," but there are reasons for concern.
Last week, metals consultancy GFMS said gold could top out at $2,000 an ounce next, marking an end to the yellow metal's bull market. GFMS also noted supply and demand dynamics that would favor gold bears this year, saying there could be a gold surplus of $130 billion, Reuters reported.
Perhaps more concerning is the fact that gold has shown little signs of being a safe have this year. Year-to-date, GLD is up about 5.3% as gold prices have NOT been bolstered by Europe's worsening sovereign debt crisis or the continued running of hot printing presses by global central banks. Italy, a major gold consumer, is officially in a recession and home to soaring sovereign bond yields.
And then there's India. The world's largest gold consumer put a lid on gold prices by proposing new taxes on gold imports and jewelry. Those proposals may be revoked, but the damage is done. Add to that, demand in China, the world's second-largest gold consumer, has been seen as tepid this year.
Simply put, gold's lack of industrial use should have at least kept the metal's safe haven status in tact this year, insulating investors from the whims of a volatile global economy. That hasn't been the case. Even with those problems, gold has been trading at a premium to platinum for a while now and on a historical basis, that's not a good thing.
Then there is the case of gold's ugly technicals. Looking at a weekly chart of gold's run over the past three years, the yellow metal has done an amazing job of honoring its 200-day moving average, but it violated the key indicator late last year and did it again recently, indicating the path of least resistance may be lower and that a party that started in 2000 may be over.
For more on gold ETFs, please click HERE.
(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.