Gold This Year Sank Like Lead; Expect the Same in 2014

NEW YORK (TheStreet) -- It has been a terrible year for gold. The two biggest mining companies, Goldcorp (GG) and Barrick Gold (ABX), and the SPDR Gold Shares ETF (GLD), are all down by double digits. By contrast, it was a bull market year for stocks, with the Dow Jones Industrial Average (DIA) rising more than 25% for 2013.

Based on recent economic data and financial indicators, 2014 looks to be more of the same for those choosing to speculate on the yellow metal rather than invest in equities.

Gold has posted its worst year since 1981. In general, gold performs best as a safe haven asset when economic times are at their worst. When investors lose confidence in the value of paper money, many buy gold. That drives up the price.

But that has not been the case for 2013. There are simply too many undeniable signs that the global economy is improving, with the U.S. and China, the two biggest economic powers, leading the recovery from the Great Recession

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The improving economies around the world will not lead to higher prices for gold.

In fact, gold's appeal has never been as an investment. It has always been a speculative buy, as there is virtually no industrial usage. Supply from economic forces will never drive up the price of gold as it may for oil or copper. Those owning gold have to hope that another buyer is willing to pay a higher price. This is what is known as "the greater fool theory."

That is not investing; that is speculating or gambling.

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Warren Buffett, who knows a thing or two about value, made the following remarks about gold and its role as an investment back in March 2011. At that time, SPDR Gold Shares were around $140 a share. Now they are around $115.

From The Oracle of Omaha:

"I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side... Now for that same cube of gold, it would be worth at today's market prices about $7 trillion dollars -- that's probably about a third of the value of all the stocks in the United States. For $7 trillion dollars... you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM), and you could have a trillion dollars of walking-around money... And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally...Call me crazy, but I'll take the farmland and the Exxon Mobils."

For those who think that gold might rebound as a force of economic stability, think again. Paul Krugman wrote in The New York Times that, "Under the gold standard, America had no major financial panics other than in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933."

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The most recent numbers from the U.S. and China show that their gross domestic products are growing. As detailed in a recent article on TheStreet, both are importing and exporting more, too. Due to increasing economic activity around the world, the stock markets had a bull market year; gold performed bearishly. Many, many more investors chose to buy the equities of publicly traded companies, rather than gamble that someone else would pay more than they did for gold.

Fortunately, that looks to be the case for 2014 too.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of The Street or its editorial staff.

Jonathan Yates is a financial writer who has had thousands of articles appear in periodicals and Web sites such as TheStreet, Newsweek, The Washington Post and many others. Much of his career was spent working on Capitol Hill for Members of Congress in both the House and Senate, on both committee and personal staff.  He was also General Counsel for a publicly traded corporation.  He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

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