Gold's Gleam Diminishes as Price Rise Stalls


"There is no short-terms catalyst for gold, but longer term there still is a bullish set-up. . ."

The playbook for going defensive recently has looked about the same as it usually does, except for one shiny metal.

Over the past three weeks, declining economic sentiment and a lack of market catalysts have helped push stocks swiftly to the downside. Overall, the Dow Jones Industrial Average and the S&P 500 are both off more than 5% over that time, with several other asset classes having similar falls.

Gold prices and gold stocks haven't played the role of defensive specialist after doing so perfectly for the first three months of the year. Gold prices have finished lower in four of the p0ast five weeks, including a 1% drop last week, while gold stocks, as measured by the SPDR Gold Shares, are off 6% in about a month.

"Gold isn't always a place to hide," said Katie Stockton, chief market technician for MKM Partners. "It looks like the price of gold has stalled and these stocks can't gain traction with the market trading lower."

Earlier in 2009, gold was touted as the perfect cure for an ailing market. Gold prices surged to above $1,000/oz. on March 18 even while stocks were near decade-long lows.

As such the SPDR Gold Shares pushed steadily higher for the first few months of the year while stocks were crashing. And when a two-month rally in stocks came to a pause in May, gold stocks surged again.

But June wasn't nearly as robust. Gold prices notably hit a wall, with gold now down 7% from its record close.

Unfortunately for those holding gold stocks, the broad market declines are expected to continue, not subside. Recent weekly data from Boston-based First Coverage, which specializes in tracking investor sentiment based on private sell-side conversations with portfolio managers, is signaling that most market veterans expect a "big fall" in stocks, with the recent three-week slide only a harbinger of more to come.

"There is no short-terms catalyst for gold, but longer term there still is a bullish set-up where you can expect higher prices over time," Ms. Stockton said.

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