Have gold prices already peaked?

The metal's long run may end with a whimper instead of a crash.

It’s easy to tell when Ben Bernanke says something important: markets tend to rise or fall depending on what the U.S. Federal Reserve chairman telegraphs. But when gold prices dropped about 2% early this month, it had nothing to do with what he said. It was what he didn’t say that many blamed for the slump.

On March 1, Bernanke spoke to the Senate about employment and interest rates, but he didn’t make any reference to another monetary stimulus program. That’s bad news for gold bugs who typically buy more metal when central banks run their printing presses.

Adam Sarhan, CEO of New York–based Sarhan Capital, says the more currency that’s put into the economic system, the less valuable it becomes. That causes gold—which many see as an alternative reserve currency to the greenback—to rise. If the U.S. central bank eases its monetary policy, other countries could follow suit, and that’s worrying gold investors, he says. “If the Kool-Aid stops, then people start getting concerned that prices will come diving down,” he says.

Gold’s downward slide didn’t just start with Bernanke’s speech, though. The precious metal has been moving sideways since Sept. 6, when it hit a high of US$1,920 an ounce. It fell about 16% over the next 20 days and has been bouncing between $1,600 and $1,800 ever since.

Rick Ferri, founder of Portfolio Solutions, based in Troy, Mich., thinks this is the beginning of the end for gold’s relentless rise. He points to several reasons why the price is stagnating—“confidence in the U.S. economy; less worries about Greece; reflation in Japan; slower growth in China, which lowers commodity prices”—but the bottom line is that the better the global economy does, the less demand there is for the yellow metal.

There’s a good chance the commodity’s price will continue its muddled trajectory for years, perhaps even a couple of decades, says Ferri. There will be more small drops, like the one we saw at the beginning of March, and more gains, like the one we saw in the middle of February, when the price rose about 4%. But over the long term, he says, it’s coming down. “If you look at other periods of currency devaluation, it takes about 10 years or so for the price of gold to run up and 15 years for it to run back down,” he says. “It’s a 25- or 30-year cycle, and we’re in the middle of it.” That cycle will end with gold at an inflation-adjusted value of around $600 an ounce, he predicts.

Of course, gold bugs will disagree—the massive U.S. debt is just one sign that makes them believe gold will still shoot through the roof—but as U.S. unemployment rates fall, the EU works out its problems and China’s growth slows, gold’s bright days look numbered