The price of gold has fallen nearly 10% over the last three days. The Chicago Mercantile Exchange and the Shanghai Gold Exchange both raised margin requirements that will increase the cost of speculating in gold futures. That is as good a catalyst as any in starting an overdue correction in the price of gold, which had developed accelerating momentum in rising nearly 30% this year, the 11th year of its bull market.
Though it is difficult to get solid information about gold holdings among institutional and individual investors, my sense is that gold does not yet comprise a significant portion of the typical portfolio (institutional or individual).
It is even more difficult to assign a reasonable value to gold. If gold is considered an alternative form of money, one could add the outstanding amounts of currency in circulation and set the price of gold so that the value of aggregate gold reserves held by central banks would equal the amount of money in circulation. Under this approach, gold would still be sharply underpriced. But that seems to have no bearing to the short-term price of gold.
Yet gold has historically done well when real short-term interest rates are negative, as they are now and will almost surely be for a couple of more years. And seasonally, gold has had a strong tendency to rise sharply in August and into the annual gold conference in Denver in September.
It may be that this time the price peaked out a bit early, and the bull market is over. I doubt it. With global monetary policies as they are, a correction in the price of gold would seem to be a good entry point for those who don't own gold. In addition to gold, I still like instruments tied to prices of farm products on a long-term basis and would combine these with gold holdings.