Is gold’s run coming to an end?

For many investors, gold has been something of a life raft, keeping portfolios and retirement dreams afloat when all other investments seemed full of lead. But after hitting a five-week low on Monday, is gold no longer the salvation many have come to expect?

After 10 years of staggering gains, gold prices have suddenly hit the skids. The yellow metal has fallen more than $50 since late last week, and is now under $1,500 a troy ounce. That marks the end of an unprecedented decade that’s lifted portfolios — or at least minimized losses — for those who bought gold in 2001 when it was $272 and change. Those who invested in the popular SPDR Gold Shares ETF  at inception have more than tripled their money. And for a while, demand seemed insatiable: The SPDR Gold Shares ETF has grown in every year of its existence, and now has $59 billion in assets, about 13 times its size in 2005.

But now investors are starting to wonder whether this is a temporary setback or the end of the golden age. Experts are divided. Rob Lutts, the chief investment officer at Cabot Money Management, a Massachusetts firm with $500 million in assets, says gold’s climb could continue if world governments struggling with debt continue to essentially print new money, which devalues their currencies and strengthens the case for owning the precious metal as an inflation hedge. Large institutions like pension funds looking to protect their purchasing power “could be the catalyst for a further move” up, he says. In terms of investors’ interest in gold, “I think we’re moving from acceptance into love affair,” Lutts says.

Others are not so sure. While gold’s drop below the $1,500 mark doesn’t set off any warning bells for technical analysts, round numbers like that can be psychologically important for traders, says Rodney Johnson, the president of HS Dent. Plus, in the past several weeks, gold prices have been trading in a “consolidation” pattern that suggests the asset’s momentum is beginning to slow, Johnson says. “If you were investing for the strength of the price move, that’s gone,” he says. What’s more, Johnson says, the end of the Federal Reserve’s quantitative easing program this week, plus the possibility of weaker corporate earnings, could significantly weaken the case for owning gold and other commodities as inflation hedges since the macroeconomic risk would shift towards deflation.

Of course, it takes more than a week to determine a long-term trend, say experts. Gold could rebound again this week. If anything, the plunge should serve as a reminder that gold is a risky, speculative play to begin with, says Mark Matson, the founder and CEO of Matson Money, an investment advisory firm with $3.1 billion under management. Over the long term, gold’s returns haven’t been nearly as strong as the recent run-up might lead investors to believe, Matson says. “You take short periods of time and you extrapolate that gold’s a great investment because it’s got five years of gains — well, that’s ridiculous,” he says. “Investors would be better off to stay away from it.” - Source: Smartmoney.com