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Jim Rogers: Why Gold Broke Its Bull Run


The legendary commodity trader explains why a popular emerging market broke gold's continued upside push.

After 12 long years of being the darling commodity, gold is finally showing signs of mortality, as the precious metal has lost more than 20% in 2013. Though many felt the bull run, which included a dozen consecutive winning years, would continue with the Fed's easing policy, the metal has finally succumb to the pressures around it. While many continue to try and pinpoint the reason behind gold's steep drop, commodity legend Jim Rogers points the blame to a popular emerging market.

India and the Gold Effect

As Rogers notes, India is the largest buyer of gold in the world, giving them a fair amount of influence over the price of the metal. As gold continued to skyrocket in price, so too did India's trade deficit, the largest drivers of which are gold and oil. As Rogers states, the nation can't do much about oil prices, so that leaves gold to take the fall.

As such, India has taken a number of measures to slow the import of gold including a ban on installment credit card purchases. The first half of May saw India purchase $135 million in the first two weeks of the month, but only $36 million the latter two weeks of the month. Many economists have pointed out that if India would simply curtail its gold purchases, it would be able to alleviate its account deficit and get its economy back on the right track.

India, however, is not the only country taking measures against the yellow metal. Germany and France have notably adopted policies aimed at slowing the purchase and selling of gold, putting this commodity in quite the pinch.

Gold and the Economy

While India has certainly been keeping gold down as Rogers states, the U.S. economy has also put a lot of pressure on the metal. With equities surging and markets enjoying a nice bull run, many investors have increased their risk appetite which has left safe havens like gold in the dust.

This shifting of assets has been best demonstrated by the SPDR Gold Trust (NYSEARCA:GLD) which has seen outflows of over $19 billion this year alone. For a brief period of time in 2011, when gold hit its historical peak, GLD was the largest ETF on the face of the earth. Now that gold is on its way back down, the fund has fallen to 5th place by assets, and could easily lose a few more spots before the year closes out.

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Editor's note: This article by Jared Cummans was originally published on Commodity HQ.
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