As our own Kevin McElroy has written regularly, gold prices have been on quite a run in recent years. Over the past decade, the price of gold has risen every year, gaining an average of 16.8% per year. Gold prices have increased at an even faster pace – 19.4% – in the last five years.
But gold’s bull run has slowed in 2012. In fact, as of today, gold prices are actually in the red for year.
Spot gold prices have fallen 25 points today to drop to $1,558 an ounce, the cheapest the yellow metal has been since last summer. That’s down slightly from where gold started the year, at $1,565 an ounce, and down nearly 19% from the $1,920 an ounce gold touched in late August.
A stronger dollar has been the main culprit behind gold’s decline. The dollar is up a quarter of a percent in 2012, but nearly 5% since late February. Since late August, when gold was hovering just above$1,900 an ounce, the dollar has risen 13%.
The dollar’s strength is due largely the increasing weakness in the euro. Sovereign debt problems in Europe have driven investors away from the euro, and many of them have flocked to the U.S. dollar. Gold typically moves in the opposite direction of the U.S. dollar.
With the dollar suddenly becoming a safe haven for investors, gold has become less valuable – at least for now. Gold was the safe haven during the debt crisis last year. Historically, gold has always been a safe haven.
That’s why, amid the global economic turbulence of the past five years, gold has thrived. With uncertainty remaining, gold prices likely won’t stay down for long. While the dollar appears to be where investors ditching the euro are flocking at the moment, the relative weakness of currencies in general – including the dollar – should bring investors back to gold soon enough.
Gold’s run isn’t over yet. By year’s end, look for the yellow metal to be back in the black.