Can a Bear Market Indicate the the Potential for a Recession?

This question reminds of the quote from the famous 20th century MIT economist, Paul Samuelson, "the stock market has predicted 9 of the last 5 recessions".  

If we are at the beginning stages of a recession then soon the unemployment rate will begin to increase and economic growth will begin to slow.  Given the recent decline in the unemployment rate (see below) and continued job growth that seems unlikely.  In addition although economic growth is relatively weak by historical standards it continues to chug along.

A recent analysis by Steve Liesman at CNBC shows that since the end of WWII the US stock market has suffered 13 bear markets.  A recession followed within 12 months of the bear market on 7 occasions for a hit rate of 53% (about like flipping a coin).

So is it axiomatic that that the US is headed into a recession due to the recent decline in the stock markets.  No.  There is about 50-50 chance the US is headed into a recession.  Given the decline in the unemployment rate and a weak but flat economic growth rate the chances for a recession are relatively low.  Besides as stated in my previous post the recent decline in the markets is more than likely caused by the selling of SWFs and has little to do with the US economy.

Why is the Stock Market so Volatile in the First Two Months of 2016?

Time to get real about what is going on with the stock market this year.  All this talk about a possible recession, the concern about more Fed tightening, the economic slowdown in China, etc. are just a lot of talking points for the folks in the mainstream media (MSM). 

Rule #1 about the stock market - stock prices go down because there are more sellers than buyers.  Therefore, someone is selling.

Who is this selling in the US markets?  

1.  If you take the 50 day moving average of the volume on the S&P 500 index since January 4 (first trading day of the year) there have only been 3 trading days out of 33 or 9.1% (through Feb. 19) that have been below the 50-day moving average.  A similar analysis using the NASDAQ indicates that only 7 out of 33 trading days (21.2%) were below the 50-day moving average.  Let's face it in any random 33 day period one would expect about half of the days to be above and half of the days to be below the 50-day moving average for volume.  Based on this very simple analysis it appears someone is selling.  By the way, I did the same count of the S&P 500 for 2015 (Jan. 5 through Feb. 19, 2015) and found 16 of the 32 trading days were below the 50-day moving average or exactly 50%.

2.  Could this be panic selling?  For this I looked at the VIX, a measure of volatility for the S&P 500.  The market drop in late August gives an indication of what high volatility looks like when the market is in "panic" selling mode.  Since January 4, the levels of volatility are higher than a year ago, but nowhere near the levels seen in August.  This indicates that the selling seen since the first of the year is orderly.  Don't believe me.  Go to Stockcharts.com and plot the VIX yourself (symbol $VIX).

3.  Even the casual observer of the market will notice a correlation (not causation) between the price of oil and S&P 500 since the first of the year.  A simple correlation analysis between the price of crude oil and the S&P 500 index indicates a correlation of about 85% since the first of the year.  The same analysis for the last 35 trading days of 2015 shows a correlation between the price of crude and S&P 500 of 68%.  Considerably less.  Does the market know something about the relationship between the price of oil and stock market that the rest of us retail investors do not?  Probably.

So what does all this mean?  

1.  The S&P 500 is down and the volume is up.

2.  Volatility is up, but not in panic mode.

3.  The S&P 500 is closely correlated with the price of oil so far this year.

Enter the Sovereign Wealth Fund (SWF).  What is a SWF?  A SWF is basically a savings account for countries, especially those that have a lot of excess cash like the oil exporting countries.  A good definition can be found at the SWF Institute or SWFI website (SWF#1). Investopedia also has a good definition SWF#2.

These Funds are usually quite large and are just not restricted to oil-exporting countries.  For example China, Singapore, and South Korea have SWFs.  Only about 60% of SWF assets are energy related.  Some of the largest SWFs are the oil-exporting countries like (estimated size in billions of dollars):

Norway                 $825 B

UAE                       773

Saudi Arabia           623

Kuwait                    592

Qatar                      256

In total the world's SWFs have about $7 Trillion in assets and the largest ones had about $3.04 Trillion in stocks world wide at the end of 2015.  According to Bloomberg if the price of oil stays between $30 and $40 this year the some of the oil-exporting SWFs will sell about $404 billion of equities worldwide (Bloomberg #1) to cover government budget shortfalls caused by lower oil prices.  The SWFI estimates that the SWFs sold about $213 billion in listed US equities in 2015 (SWFI #1), which continued into the first two months of this year.

I looks like the sellers are the SWFs.

If you are an investor what does that mean to you?  Several things:

1.  Assume the market this year will have periods of high volatility as SWFs enter the market to liquidate some of their equity positions.

2.  If you use technical analysis to guide you through your investing assume their will be periods when the signals do not work well.  Large-scale selling will trump most market signals.

3.  However you choose to handle the market, get ready for a tough year in the markets.

Good luck!

US Housing Starts Through May 2014

US housing starts both total and 1-unit structures from January 1959 through May 2014.  Note the spread between total and 1-unit structures for the last few years.

From the St. Louis Federal Reserve Bank:

Karl Case of the Case-Shiller Index Comments About Housing.

Continuing the topic of housing from the previous 2 posts, below are comments made about the housing market from Karl Case of Case-Shiller Index fame.  It is fair to say that he sees difficult times ahead in the housing market.

The article is in italics and the bold is my emphasis.  From CNN Money:

The housing market is a "crapshoot" now, according to one of America's leading real estate experts.

Karl "Chip" Case is an economist whose name is synonymous with home prices. He is co-creator of the much watched S&P/Case-Shiller home price indexes with Bob Shiller, who won the Nobel Prize in economics last year.

"You've got much more negative vibrations in the housing surveys about homeownership than we ever had before," Case told CNNMoney. "I think it's because people got hosed. They thought that housing prices will never go down. That's just bull -- you know what."

At age 67, Case still rattles off housing data with the kind of enthusiasm that most people use to recite popular song lyrics. For Case, the key metric to watch is housing starts, a measure of new residential home construction.

The housing starts figures have been "unbelievably regular" for 50 years, oscillating between a million a month in not so great times and two million during peak economic times.

"Every time it's gotten below a million in the past, it's come right back," Case says. Every time except the Great Recession.

Housing starts fell below 500,000 for several months in 2009, an unthinkable level. And they have been slow to rebound. They finally eked above the million mark in April, but it's unclear to Case if this is a true turning point.

He calls the real estate market "segmented" these days. It's no longer a guarantee that housing prices will go up across the country. That only happens in some places at some times.

The demand side of the equation will also be key. Will millennials actually purchase homes? Will foreign buyers keep coming?

"The Chinese are coming over here with millions and billions of dollars, and they want to spend it on assets that tend to hold their value. And at least the theory is that housing does. But it is far from what it was in 2004," Case notes.

The advice Case gives to first-time homebuyers is familiar to most. Be sure you can afford the house and don't expect a quick profit.

"If you're not buying it for the long haul, don't buy because there's a good chance you'll have to sit through some down cycles. But when it goes, it's very nice," he says.

Case has studied housing extensively. But he's not just an academic. He's a homeowner too. He still remembers the house he bought in 1976 for $54,000 and sold years later for $240,000. Another home in the Boston area he purchased for about $375,000 is now worth a million.

But even Case doesn't always call housing trends correctly, at least in the short-term. He estimates that another property he owns lost close to half its value in the downturn. For now, he's keeping it.

Arguably his best property move, however, is his permanent parking spot at the Boston Federal Reserve -- which is near Fenway Park. He's had it since the late 1980s and uses it when he goes to watch his beloved Boston Red Sox play. 

The Housing Market is Faltering #2

Below is another recent article about the faltering housing market.  This author points out that the interest in home ownership is being usurped by concerns for having enough money for retirement, not to mention all the other things such as lending standards, etc.  One thing I have noticed in the younger generation (mostly millennials) is that they do not consider home ownership as an investment.  A very different view from earlier generations.

The article is in italics and the bold is my emphasis.  From Market Watch:

For Rebecca Diamond, a marketing manager in Randallstown, Md. who’s getting married this month, buying a home with her new husband would seem like the logical next step.

But she’s not even considering it.

“No interest whatsoever. I don’t want the cost and responsibility of one right now,” she says. “Let [the landlord] have all the headaches,” adds Diamond, who rents a three-bedroom condo outside of Baltimore.

She’s hardly alone. Just 74.4 million American households — less than 65% of the country — owned the homes they lived in during the first quarter of this year, according to a U.S. Census Bureau report this week. That was the lowest level since 1995 and a big drop from 2006, when a peak of 76.5 million households, or 68.9%, were owner-occupied.

In fact, the National Endowment for Financial Education released a poll this week that showed only 13% of Americans considered home ownership as their “top long term financial goal,” down from 17% in 2011.

“The American dream has long been associated with the gratification and security of a comfortable home within the picturesque borders of a white-picket fence,” said Ted Beck, president and CEO of the NEFE, which is based in Denver. “However, today the perceived importance of home ownership appears to be waning.”

Instead, according to the poll, a whopping 50% said that their sole long term financial goal was to save enough for retirement, up from 43% three years earlier, even though most financial planners say owning a home is the best way to build wealth that can be tapped once you retire.

Stephen Alberts, a Long & Foster real-estate agent in Williamsburg, Va., who does many of his deals in the coastal retirement community of Virginia Beach, says his business is tougher than ever. “Even I’ve got to pound the ground,” he said. “Buyers just aren’t coming to me anymore.”

For him, it’s all about the economy.

“In most markets they’re worried about the security of their jobs, so they’re reluctant to put roots down and get stability.” Alberts says his market generally bucks the trend since Virginia Beach is a destination for many to spend their golden years. “We are more stable as we have retirees who have already made their money,” echoing NEFE’s poll numbers showing retirement savings is driving consumers.

Still, Albert says first-time home buyers are put off by rising prices and multiple bids. “We also have to do a lot of re-education of our buyers,” he said.

For realtors too, it’s credit scores being too tight.

According to the National Association of Realtors, the average accepted credit score on conventional mortgages was around 720. “A credit score that would have gotten you a mortgage before 2008 is now below the average rejection score,” said Walt Molony of the National Association of Realtors.

“Things are improving, but at a snail’s pace,” he said. The NAR points to its “Housing Affordability Index,” which shows that if a U.S. family was earning the median family income in 2013 of $63,623, it would have 175% of the necessary income to buy a median single family home priced at $197,400.

That equates to about 20 million households able to purchase a home, but choosing not to. And Molony points the finger at the banks more than anything else. “The problem is overly restrictive mortgage lending standards, relying on arbitrarily high credit scores,” he said.

That’s not necessarily true, said Darren Ferlisi, a loan officer with Integrity Home Mortgage Corp. in Frederick, Md., who said FICO scores of 640 and in some cases as low as 620 will qualify for a mortgage today. “If anything, we have more flexibility than we had two years ago,” he said.

Still, as a result of the Great Recession, many people who otherwise had 9-to-5 jobs now are freelancers or self employed, which makes proving two years’ worth of income difficult, especially when those first two years were poor ones as their businesses were just getting off the ground, says Greg McBride, chief financial analyst at Bankrate.com.

“The problem is a lot of those people don’t have $20,000 or $30,000 to make a down payment, and if they’ve got two years of tax returns, in this economy, they might be losses,” McBride said. “A loss for tax purposes is still a loss when it comes to qualifying for a home mortgage.”

McBride says he sees the smaller number of Americans making a home their ultimate financial goal as a good thing. “People compromise their financial goals in pursuit of home ownership and they aren’t putting enough into their retirement or their 401(k) and they end up house rich but cash poor,” he said.

Once more Americans feel financially secure about their retirement, they’ll return to the housing market, he said. “They’ve rightly felt burned by the housing bust, but five to fifteen years from now, they’ll be back.” 

The Housing Market is Faltering

There are so many problems with the US housing market that I cannot even begin to discuss them.  But, the simplest way to understand the real estate market is that the US has the lowest mortgage rates since the Eisenhower Administration and the housing market is stagnating.  We have a problem.  The article below outlines some of the issues in the current real estate market.  Also please remember that real estate markets are local.  What applies in Oakland, CA may not apply in Oakland, MI.

From Bloomberg:

The two-year-old U.S. housing recovery is faltering.

The Mortgage Bankers Association yesterday lowered its forecast for combined new and existing home sales in 2014 to 5.28 million -- a decline of 4.1 percent that would be the first annual drop in four years. The group also cut its prediction on mortgage lending volume for purchases to $595 billion, an 8.7 percent decrease and the first retreat in three years.

Bullish forecasts in early 2014 from MBA, Fannie Mae, and Freddie Mac have been sideswiped by rising home prices and an economy that isn’t producing higher paying jobs. The share of Americans who said they planned to buy a home in the next six months plunged to 4.9 percent last month from 7.4 percent at the end of 2013, the highest in records going back to 1964, according to the Conference Board, a research firm in New York.

“The big housing rally wiped itself out because prices increased too quickly for buyers to keep up,” said Richard Hastings, a consumer strategist at Global Hunter Securities LLC in Charlette, NC, who predicted the slowdown eight months ago. “The pool of eligible new buyers is collapsing” because of stagnant incomes and lack of credit, he said.

The best-qualified homebuyers jumped into the market last year to grab near-record low mortgage rates that averaged about 3.5 percent after delaying their moving plans during the housing slump, said Nariman Behravesh, chief economist of IHS Inc., a research firm based in Englewood, Colorado.

The median price of an existing home gained 11.5 percent last year, second only to 2005’s 12 percent increase, the highest on record, according to the National Association of Realtors. This year, price appreciation probably will slow to 5.6 percent, NAR said. U.S. 30-year fixed mortgage rates probably will average 4.5 percent, up from 4 percent last year, according to the MBA forecast.

As prices climb, the ability of Americans with stagnant wages to buy homes wanes.

The median U.S. household income rose less than 1 percent in 2013, according to data from Sentier Research LLC in Annapolis, Maryland. In April, the median income was $52,959. When adjusted for inflation, that’s almost 6 percent lower than in June 2009, which marked the beginning of the economic recovery, said Gordon Green, a Sentier partner who formerly directed the Census Bureau office that compiles wage statistics.

“Even though we’re technically in a recovery, household income is lower now than it was in the recession,” Green said. “It makes it a lot harder to buy a house.”

Three major housing forecasters -- MBA and government-run mortgage financiers Freddie Mac and Fannie Mae -- began the year projecting an average home-sale gain of 10 percent in 2014.

In May, after monthly reductions in their estimates, Fannie Mae and MBA for the first time projected an annual decline, amounting to less than one percent.

Freddie Mac this week lowered its 2014 home sales forecast to 5.4 million -- a 1.8 percent drop from 2013. The company also cut its prediction on mortgage lending volume for purchases to about $751 billion.

While home purchase applications have picked up recently with the traditional home buying season now underway, they’re still 13 percent below last year, Freddie Mac chief economist Frank Nothaft and deputy chief economist Leonard Kiefer said in the forecast.

“For this reason, we’re lowering our overall homes sales forecast” for 2014, the economists said.

Next year, new and existing home sales probably will increase to 5.8 million, according to the forecast.

The pullback by the largest investors, who raised about $20 billion to purchase as many as 200,000 properties in the past two years, has also cooled the market.

With home prices up 31 percent since a post-bubble low in January 2012 and bargains harder to find, Blackstone Group LP has reduced its pace of buying by 70 percent since last year. The firm is focusing its acquisitions for rentals on five markets -- Seattle, Atlanta and the Florida cities of Tampa, Orlando and Miami, Jonathan Gray, the firm’s global head of real estate, said in March.

As signs of a housing slowdown appeared early this year, economists initially blamed severe weather. The winter was the coldest in four years and some U.S. cities had snow accumulations at near-record levels, according to Commodity Weather Group LLC in Bethesda, Maryland.

“Winter weather explanations are valid, but they’re not endless,” said Hastings of Global Hunter. “When prices go up too much in an environment where families can’t pay them, the rally cancels itself out.”

The economy, which contracted 1 percent in the first quarter, is mostly generating lower-paying jobs.

In May, payrolls increased by more than 200,000 for a fourth consecutive month, the first time that’s happened since early 2000, according to the Labor Department. The number of workers in May rose to 138.5 million, surpassing the level in 2008 before the financial crisis wiped out 8.7 million jobs.

The gain was led by low-paying positions such as nursing home orderlies and temporary office jobs, both at records, according to government data.

Even with job increases, “a broader assessment of indicators suggests that underutilization in the labor market remains significant,” Federal Reserve Chair Janet Yellen said at a June 18 press conference in Washington following a meeting of the FOMC.

High-wage sectors haven’t rebounded. Compared with 2008, there were 1.6 million fewer people working in manufacturing in May and 340,000 fewer people working in finance, according to government data.

“The real shocker is the labor market,” said Behravesh of IHS. “We’re barely back up to where we were before the recession began. A lot of the people without good jobs are the ones who should be buying homes right now.”

Even with mortgage rates that have averaged 4.3 percent this year, housing affordability has eroded. In the first quarter, 66 percent of new and existing homes were affordable to families earning the national median income, down from 74 percent a year earlier, according to the National Association of Home Builders in Washington.

Economic grow this year would create additional jobs and allow more people to buy homes. The pace of growth will exceed 3 percent in the final three quarters of the year, according to economists surveyed by Bloomberg.

The FHFA, which oversees Freddie Mac and Fannie Mae, in May announced new rules to encourage lenders to relax credit standards. The rules are designed to reduce the risk that lenders will have to buy back soured mortgages due to underwriting errors -- an issue that has kept standards tight.

The average credit score for borrowers in May who bought homes was 755 on a scale of 300 to 850, according to a report this week from Ellie Mae, a loan processor in Pleasanton, California. That compared with 756 in December, the last time it was higher.

A decade ago before the housing bubble, the average score was about 715, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, PA.

“Making credit more available is vital to the housing recovery, which is vital to the economy,” said Zandi.

How the US Ranks in Happiness

From Happy Counts:

Which Should We Measure GDP or Happiness?

It is Sunday and it is time to contemplate the world in which we live.  The article below is about "what is happiness", how should it be measured, how should be compared to GDP, etc.  All good questions.

The article is in italics and the bold is my emphasis.  From CNN Money:

The drafters of the Declaration of Independence didn't really define "Happiness" when they cited the pursuit of it as an inalienable right.

But in recent years, there's been a quest to define and measure it, especially in the context of a prosperous economy.

That's because economic growth as measured by gross domestic product doesn't really tell us much about citizens' general well-being.

"For example, traffic jams may increase GDP as a result of the increased use of gasoline, but obviously not the quality of life," according to a report by an international commission chaired by Nobel Prize-winning economist Joseph Stiglitz.

The assumption is that the more economic growth the better. Legislators are forever debating the merits of a measure on the basis of whether it would create jobs and boost GDP.

But rarely do you hear lawmakers debate whether a measure will boost or detract from citizens' well-being, of which income is just on part.

Take North Dakota. Its economy has doubled in the past 25 years thanks to a massive oil boom. Incomes have soared, but so have prices, traffic, crime, and housing shortages.

Well-being, of course, relies on many factors -- from health and education, to environment and culture, to the quality of governance, your community and how you use your time.

There's a growing international chorus that thinks this kind of well-being should be measured and used as a guide when formulating policy and tracking social progress.

The tiny nation of Bhutan pioneered the effort, adopting a "gross national happiness index" decades ago.  (BTW, Bhutan is in the Himalayas north of Bangladesh and east of Nepal.  I had to look it up.) 

The rest of the world has been slow to catch on. But there have been nascent efforts in recent years to address the issue.

In 2011, the U.N. General Assembly passed a resolution encouraging countries to measure their citizens' happiness and use that measure to help guide public policies.

More recently, the Organization for Economic Cooperation and Development (OECD) has created guidelines for nations that want to measure well-being.

In the United States, four states -- Maryland, Vermont, Oregon and Colorado -- have developed a "genuine progress indicator," according to Demos, a left-leaning think tank.

The GPI seeks to quantify in a consistent way the cost and value of factors not measured by GDP.

For instance, Maryland -- which was the first state to adopt a GPI -- is seeking to assess, among other things, the "environmental and social costs of what we buy, [and] the quality-of-life impacts of how we live."

Some cities and towns, meanwhile, have started their own "happiness initiatives," distributing gross happiness surveys to residents to give local policymakers a sense of the level of their constituents satisfaction in different areas.

It doesn't appear that there will be any kind of universal agreement to measure citizens' happiness and well-being anytime soon.

But proponents -- such as the Sustainable Development Solutions Network (SDSN) -- are trying to make the economic case to governments as to why they should.

"Happy people live longer, are more productive, earn more, and are also better citizens. Well-being should be developed both for its own sake and for its side-effects," SDSN noted in its 2013 World Happiness Report.

Other sources on this subject:

Joseph Stiglitz analysis:

http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf

Bhutan guide to Gross National Happiness Index:

http://www.grossnationalhappiness.com/wp-content/uploads/2012/04/Short-GNH-Index-edited.pdf

Want to take the Gross National Happiness Index?  Well worth the time.  I need to become happier.

http://www.happycounts.org/

The World Happiness Report:

http://unsdsn.org/wp-content/uploads/2014/02/WorldHappinessReport2013_online.pdf

Who Pays the Taxes?

I am always fascinated by who pays the taxes in the US.  I am fascinated because there is a great deal of 100% fact-free discussion about a subject in the mainstream media and among  the politicians in spite of fact that there is a great deal of data available on the subject.  So let's skip all the discussion and go right to the data.

By the way, do not infer any point of view on my part due the charts or their sources.  I just like the charts.

From Heritage Org:.

Despite the top individual tax rate fluctuating between 91 percent and 28 percent over the past 50 years, total individual receipts have remained fairly stable. The top rate was last increased in 2013 and is now at 39.6 percent.



A second graph I found interesting from The Daily Signal:

Despite calls for more taxes on the rich, the Heritage chart shown above reveals that the recent tax increases disproportionately affect the working wealthy. The top 10 percent of all income earners paid 71 percent of federal income taxes in 2010, yet they earned 45 percent of all federal income. Compare that to the bottom 50 percent of earners, who earn 12 percent of income yet pay only 2 percent of federal income taxes.

Should You Be Buying into the Rally in Gold Prices?

In recent weeks the price of gold has move up nearly 6%.  Is this a harbinger of more gains in the future.  I do not think so.  Precious metal prices are driven by uncertainty and/or inflation.  Maybe gold is up recently due in the situation in the Ukraine or in Iraq, but inflation fears are probably misguided.  When you put all those things together I am not seeing any strong drivers for higher gold prices.

Below is an article from CNN Money.com concerning the recent run-up in the price of gold.

Gold shot up more than 3% on Thursday, the biggest one day gain since September 2013. Prices were up slightly again Friday, with futures trading at about $1,316 an ounce.

So far this month, gold prices have risen nearly 6%.

While gold bugs have regained some swagger, analysts don't expect the metal to break out of the funk it's been in for the past year.

The recent jump in gold prices comes as turmoil in Iraq has put some investors on edge. Gold and other so-called "hard" assets often find favor in times of political and economic uncertainty.

Meanwhile, Russian forces have been massing on the eastern border with Ukraine, raising concerns about an escalation of tensions in an already volatile region.

"There are a lot of reasons investors should own gold," said Donald Doyle, chief executive of Blanchard & Co., a precious metals dealer in New Orleans. The current geopolitical uncertainty "illustrates the metal's qualities as insurance when governments clash."

Doyle added that investors were also spooked by comments from Janet Yellen on Wednesday. Yellen reiterated that the central bank is unlikely to hike interest rates any time soon.

Some investors see gold as an alternative to the U.S. dollar, which they believe is being undermined by the Fed's policies.

But other analysts say Thursday's rally was driven by technical factors, such as "short covering."

The price of gold rose above its 50-day moving average early Thursday, which triggered a wave of buy orders and caused investors who were betting against the metal to unwind their positions, said Carlos Sanchez, a precious metals analyst at the CPM Group.

Investors have been "short" gold for at least a year, meaning they are positioned to benefit from falling prices. Analysts say that's not likely to change anytime soon.

The summer months are historically very slow in the gold market. In addition, demand from China, which has been a big consumer of physical gold, is slowing down.

While geopolitical concerns could help support the metal in the short term, "I still think gold is headed lower," said Sanchez.

That's largely because the stock market continues to hit record highs.

And despite worries about Ukraine and Iraq, investors don't appear to be that scared. The VIX, a key measure of volatility, is at its lowest point since 2007. And the CNNMoney Fear & Greed Index, which looks at the VIX and six other measures of investor sentiment, is showing signs of Extreme Greed.

Investors fled the gold market last year as they chased better returns in more risky assets. Gold prices fell nearly 30% in 2013. It was the biggest decline since 1981 and the first year-over-year drop since 2000.

Gold hit an all-time high near $1,900 an ounce in 2011, as investors worried about a global economic collapse. But the metal has fallen out of favor with stocks in the midst of a five year-old bull market.

"The fact that the equity market continues to be strong doesn't give traders much incentive to get into gold," said Rob Kurzatkowski, senior commodities analyst at optionsXpress.

Gold will probably continue to trade in the range it has been in for most of the year, between $1,200 and $1,300 an ounce, Kurzatkowski added.

"Gold may just continue to grind here," he said. "There are too many factors underpinning the market for gold to collapse, but there's not enough to spark the metal higher either."