It’s A Good-News Bad-News Scenario For The Gold Market

Here’s some bad news. Gold investors have taken a pummeling so far this year.

The SPDR Gold Shares exchange-traded fund, which tracks the price of bullion, is down almost 4% in the year through Monday, according to Yahoo Finance data.

Many precious metals investors would have found that disappointing especially given that there is widespread belief that gold is believed to be a long term hedge against inflation. And yes, inflation has been rising this year, hitting a recent high of 9.1% in June and falling to 8.5% in July, according to data collated by Trading Economics.

In short, it’s understandable that some investors are disappointed by the returns on their gold holdings. However, perhaps they shouldn’t be.

Despite the losses this year to date, gold has vastly outperformed the broader stock market. The SPDR S&P 500 ETF which tracks the S&P 500 index is down a hefty 15.4% over the same period, excluding dividends. The SPDR Gold Shares pays no dividends.

In other words, the losses from the stock market have been almost four times as great as those from holding gold.

The bad news for gold investors is that the weakness is likely to continue for a while, experts say.

“At his speech in Jackson Hole, Fed chair Powell reaffirmed that the Fed’s primary focus was reducing inflation even if it came at the cost of economic growth,” states a recent report from commodities consulting firm CPM Group. “Expectations of tighter monetary policy are expected to weigh on gold prices.”

That means no gold rally is likely for the immediate future.

However, the impact on stocks could be worse. Gold’s resilience in the face of aa general market down-draft has been somewhat inspiring. It’s lost a lot less than many sectors, even if it hasn’t added value.