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Why Is Nobody Talking About Gold As An Investment Anymore?

It seems like only yesterday when people would be telling me how great gold is as an investment everywhere I go. Back in 2012, I remember clearly having a conversation with a new bank manager when I was visiting a bank’s branch. The manager was explaining to me how gold had consistently been growing more than 20% a year; so to him, investing in gold is like having a fixed deposit, only that the ‘gold fixed deposit’ could earn interest of 20% a year!

I made two observations that day in the bank: 1) Sometimes, people who are supposed to be “professionals” are not as professional in their line of work as we think; 2) the manager I was speaking to would probably quit when gold prices start to fall.

Sure enough, when I went back to the same branch a year later, after gold prices had a horrible 2013, there was a new manager in his seat.

SOURCE: BLOOMBERG – Gold Spot Price

In the past, gold enthusiasts would talk about gold being a great hedge against inflation and geopolitical uncertainty. With the world’s major economies all engaged in stimulus packages currently(i.e. the printing of money), won’t the threat of inflation actually loom larger? With the European Union and the United States having their most intense standoff with Russia now since the Cold War, wouldn’t geopolitical uncertainties be heightened? And yet, gold has fallen more than 30% from its peak of US$1,900 per ounce in September 2011 to its current value of US$1,326 per ounce. Meanwhile, the Straits Times Index (SGX: ^STI) has gained roughly 16% in the same period, moving up from around 2,600 points to its current mark of 3,208. Today, you get more people talking about virtual currencies than gold.

What is this telling us about gold?

I believe this relative indifference to gold indicates two things to us. First, the price of gold has nothing to do with the fundamentals of gold itself. Secondly, when expectations about something are extremely high, it is most likely a good time to sell.

In general, most of us enjoy bragging about our achievements and hiding our failures. That is why we kept hearing about gold when it was making lots of money for people in 2012. Now, with most gold investors licking their wounds, there is nothing much to tell others about.

However, this also creates a problem for us as investors. If being a contrarian is the way to make money when investing, then should we be buying something because no one’s paying any attention to it? In the current environment, gold can be said to be an investment where there’s very little interest from people. So, is this an opportunity to start buying gold? Perhaps this is a discussion for another day.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.