There are only 20 days left in 2013. We can look into some of the baseline reasons that gold's price has dropped now, and then review the year in further detail as time goes on.

 The dumping of gold from ETF holdings has had an intensely negative effect on the price of gold. In retrospect this seems natural, since ETFs are essentially derivative instruments that magnify an already leveraged trade - meaning regular spot gold contracts and futures. So, anything that is disruptive to the price of gold is only enhanced through the lens of ETFs. Once the price begins to head south, they have no alternative but to dump their physical holdings.

Because of the roaring stock markets in the United States, and because there is a new generation of traders and analysts, general sentiments about the precious yellow metal are low. When the Great Recession was in full bloom there were fewer places for investors to put their money. Gold seemed a logical choice. Now the array of equities that are moving up hard are countless. Energy stocks in the United States are particularly strong, as are tech stocks and surprisingly, automobiles and heavy machinery.

The situation with the Fed has been well documented. It is quite interesting, though, that the talk-induced instability introduced by the Fed has served to hurt gold prices regardless of what is being said. Tapering soon? Down goes gold. Not tapering soon? Down goes gold.

Gold has also suffered from the excise taxes that the Indian government imposed earlier this year on gold imports. India - along with much of central and east Asia - has traditionally put great faith in gold ownership. The gifting of gold during holidays, for birthdays and for special occasions is thousands of years old. There is no rough equivalent left in the Western World unless it is the giving of cash for weddings, birthdays, graduations and religious coming of age ceremonies. But cash doesn't have the same luster as gold. Not that anyone turns down cash gifts.

Speaking of the Western World, gold has fallen out of favor as a decorative metal in jewelry. It hasn't disappeared, of course, but as one generation grows older (Baby Boomers) and a new generation (Millennials) imposes their tastes on the market, gold has yet to find an appeal factor with the young set. That will change, although not soon.

Finally, it may well be that when gold flirted with 1900, it was terribly overvalued. As year-end reviews start repeating endlessly that gold has lost 25% of its value in the last 12 months, we have to consider that at least half of that loss was due to a settling down of irrationally high prices.

While there have been a few minor scares in the foreign relations arena, nothing large came to a head. The U.S., Europe and the Russians came to a devil's deal over Syria. Iran seems less recalcitrant than it has been historically, and North Korea is wrestling with internal changes.  

Heck, Obama even shook hands with a Cuban named Castro. It's a restless age.

As always, wishing you good trading,

Gary S. Wagner- Executive Producer

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