There are two ways to look at gold. One would be by comparing today's prices with what they were in say 2000 (see chart). Anyone who has invested in gold would have a cause to smile. Things aren't so bad, after all.
The second way would be to view gold prices post 2012. If you have bought gold just around that time, you have every reason to feel terrible. You could have lost around $600 per ounce, and must be worried that you could lose more. For you, therefore, the picture would be extremely worrying. The bears have a good case though. As pointed out in a brilliant report on Gold by Incrementum AG (In Gold We Trust – 2014), "A longer term look at [gold] shows that the current correction is still below average. The average price decline of the previous six bear markets was 43%." It does look like gold prices could get worse before they get better (if at all).
Take a second factor. Has gold outpriced itself when compared to other commodities? The data compiled by Incrementum AG does suggest that gold has become expensive compared to many of the commodities selected.
There's a third reason too. With a slowdown evident in China, and the economy yet to pick up in India, could gold offtake decline? In 2013 they were higher than in 2012. Could this year be different?
Look at the fourth. Stock markets are booming like never before. And when money needs to find a parking place, it invariably opts for sectors where a bull run is in evidence. Will the stock markets suck in the money that would otherwise have moved towards gold?
Finally, take a look at the way in which – globally -- one asset bubble after another has been bursting. It was real estate first, then oil. Does gold still have a chance to raise its head?
The answers to all queries suggest that the bearish phase for gold isn't over. Banks and lenders against gold would hence need to be careful about lending against this metal. Expect margin requirements to remain high.
But could that mean that a bullish phase for gold is not very far away? It could be so. Watch this space next week. At the same time, readers are advised to respect the ld adage "Caveat Emptor" – Buyers beware.
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