The value of gold has been sinking in the past two years, after
an astonishing decade-long rally. Some influential financial firms
and individuals are warning that the decline will continue.
Below the streets of Lower Manhattan, in the vault of the Federal Reserve Bank of New York, the world's largest trove of gold -- half a million bars -- has lost about $75 billion of its value. In Fort Knox, Kentucky, at the U.S. Bullion Depository, the damage totals $50 billion.
And in Pocatello, Idaho, the tiny golden treasure of Jon Norstog has dwindled, too. A $29,000 investment that Mr. Norstog made in 2011 is now worth about $17,000, a loss of 42 percent.
"I thought if worst came to worst and the government brought down the world economy, I would still have something that was worth something," Mr. Norstog, 67, said of his foray into gold.
Gold, pride of Croesus and store of wealth since time immemorial, has turned out to be a very bad investment of late. A mere two years after its price raced to a nominal high, gold is sinking -- fast. Its price has fallen 17 percent since late 2011. Wednesday was another bad day for gold: The price of bullion dropped $28 to $1,558 an ounce.
It is a remarkable turnabout for an in vestment that many have long regarded as one of the safest of all. The decline has been so swift that some Wall Street analysts are declaring the end of a golden age of gold. The stakes are high: The last time the metal went through a patch like this, in the 1980s, its price took 30 years to recover.
What went wrong? The answer, in part, lies in what went right. Analysts say gold is losing its allure after an astonishing 650 percent rally from August 1999 to August 2011. Fast-money hedge fund managers and ordinary savers alike flocked to gold, that haven of havens, when the world economy teetered on the brink in 2009. Now, the worst of the recession has passed. Things are looking up for the economy and, as a result, down for gold. On top of that, concern that the loose monetary policy at the Federal Reserve might set off inflation -- a prospect that drove investors to gold -- have so far proved unfounded.
And so Wall Street is growing increasingly bearish on gold, an investment that banks and others deftly marketed to the masses only a few years ago. On Wednesday, Goldman Sachs became the latest big bank to predict further declines, forecasting that the price of gold would sink to $1,390 within a year, down 11 percent from where it traded Wednesday. Societe Generale of France issued a report last week titled, "The End of the Gold Era," which said the price should fall to $1,375 by the end of the year and could keep falling for years.
Granted, gold has gone through booms and busts before, including at least two from its peak in 1980, when it traded at $835, to its high in 2011. And anyone who bought gold in 1999 and held on has done far better than the average stock market investor. Even after the recent decline, gold is still up 515 percent.
But for a generation of investors, the golden decade created the illusion that the metal would keep rising forever. The financial industry seized on such hopes to market a growing range of gold investments, making the current downturn in gold felt more widely than previous ones.
That triumph of marketing gold was apparent in an April 2011 poll
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