Gold attracts investment capital when other asset classes fail to deliver.
So now equities have clearly regained their appeal after more than a decade of what finance professionals would rather we called "sub-optimal" returns, gold investing has lost its urgency for money managers. Indeed, it's become a neat little "short" to trade against whilst picking the next winner in the S&P's all-time high dash.
More telling than equities, however, gold's 20% drop in real terms since the top of summer 2011 has coincided with an upturn in real interest rates. You might not have noticed it. Anyone saving for retirement or trying to buy a pension in the annuities market certainly hasn't. But bond guru Bill Gross says interest rates are set to rise now that the "30-year bull market in bonds ended in April."
But if you believe the gold market, however, the interest-rate cycle in fact turned higher two years ago.
Gold famously offers a natural hedge against inflation ravaging the other assets in your retirement fund or savings portfolio. But it only acts as an inflation hedge when it needs to. Because if bonds or cash in the bank are beating inflation all by themselves, there's less need for gold's precious scarcity.
It wasn't, for instance, until the real yield offered by 10-year U.S. Treasuries cracked below 2% per annum in 2001 that gold bullion finally shook itself out of its two-decade bear market, begun when real rates leapt to near-double digits to choke off inflation at the start of the 1980s. The real yields on both 10-year U.S. Treasuries and U.K. gilts, after your account for official inflation rates, then kept on falling, finally bottoming at 30-year lows – just as gold peaked – almost two years ago.