Price Plunges to Two-Year Low
One of the consequences of the recession and economic downturn of recent years has been a steady uptick in the price of gold, but recent trends suggest the "gold rush" may be over. Gold prices plunged nine percent Monday, capping off the biggest two day drop in 33 years. In late day trading, the price was just over $1,351 an ounce. This marks the first time gold has been below the $1,400 mark since March 2011. KTRH's "Money Man" Pat Shinn from Heritage Asset Advisors says it has been like a snowball effect for investors. "Gold fell below a previous low, and once it fell below that support level it was a free-fall from there," he says. Other market experts have described it as "panic selling" by investors who saw the price start to dip.
Panicked selloffs and irrational price fluctuations can happen with volatile commodities like gold, according to Shinn. "Gold pays no dividend, gold has no cash flow," he says. "So at the end of the day, gold is pretty much worth what somebody else is willing to pay." Right now, the price investors are willing to pay is steadily declining. Market analysts don't see any specific reason, other than some investors dumping gold for more lucrative stocks and bonds. Again, Shinn cautions that gold doesn't follow the rules of other investments. "There's been times when inflation has been high and gold has gone down, or uncertainty has risen and gold has gone down, so in my opinion gold has a mind of its own."
That volatile nature is what makes it so difficult to predict where gold will go from here. Some investors may view this as a buying opportunity to stock up on gold on the cheap. But Shinn expects many investors will stay away until the current trend stops. "They will wait until it forms some sort of base, then it has some sort of foundation to build upon, and that's when people will buy gold, once it starts to stabilize," he says. For now, it is anything but stable.
Listen to Money Matters with Pat Shinn Saturdays at 6 p.m. on Newsradio 740 KTRH.
Check out the latest gold prices from the Wall Street Journal here.