Since the bailout deal was reached on Cyprus, the gold price has fallen. The decline suggests that gold is really in a weak position right now. I think the price is likely to fall further. Here's why.
The major global stock markets are doing really well this year: the S&P 500 is up about 10 percent, U.K. stocks are up about 1 percent in dollar terms and Japanese stocks up about 10 percent. Even with all the problems in Europe, the Euro Stoxx index is down only about 2 percent in dollar terms. By contrast, gold and silver are down about 5 percent. Platinum and palladium have also outperformed gold and silver. In fact it's hard to find any commonly held assets that have fallen as much as gold and silver.
Even government bonds, which yield almost nothing, have done better. So it's natural that a lot of people will be wondering, why am I holding gold when I could be making more money holding this other asset? That's probably why retail holdings of gold through exchange-traded funds have fallen 7 percent since peaking at the end of last year. Also professional positions in gold futures on the COMEX have fallen by 30 percent since peaking in October of last year.
(Read More: Investors May Hate Bonds, but They Keep Buying)
Why are people selling? It seems to me that there's been not so much of a change in the factors supporting gold as a change in investors' attitudes towards these factors, with one major exception.
One of the main factors supporting gold was the expansion of the U.S. Federal Reserve's balance sheet. As the Fed pumped liquidity into the U.S. economy following the global financial crisis, the gold price rallied. But that relationship started to break down late last year and this year the two have diverged completely.