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Is Gold Losing Its Luster & Safe-Haven Appeal?

The price of gold has had an amazing run over the past decade. But as gold investors are now learning, those days may be a thing of the past.

Gold investor Jon Norstog knows this reality first hand. A $29,000 investment that Norstog made in 2011 is now worth about $17,000, a 42% loss.

“I thought if worst came to worst and the government brought down the world economy, I would still have something that was worth something,” said Norstog, 67, in an April 2013 story by the New York Times.

For a countless number of investors like Norstog, the idea that rising gold prices are no longer a sure thing is a hard one to grasp. Making matters worse is the fact the financial industry seized on the idea that gold would always be the pinnacle of great investments – not to mention a forever safe haven – to market a growing range of gold investments, including government-minted coins, publicly traded commodity funds, and mining company stocks, according to the New York Times story.

But $5 billion that flowed into gold-focused mutual funds in 2009 and 2010, according to Morningstar, helped the funds reach a peak value of $26.3 billion. Since hitting a peak in April 2011, those funds have lost half of their value, the NYT reported.

Indeed, after gold prices reached incredible highs two years ago, they’ve fallen fast. The price of bullion soared to more than $1,900 an ounce in August 2011; on Aug. 6, 2013,  gold prices were less than $1,300 an ounce.

“Gold is very much a psychological market,” said William O’Neill, a co-founder of the research firm Logic Advisors, in the New York Times story. O’Neill told its investors to get out of all gold positions in December after recommending the investment for years. “Unless there is some unforeseen development, I think the market is going lower,” he said.

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