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Opinion: Is now the best time to buy gold?

By Jim Boulden, CNN
updated 12:05 PM EDT, Tue April 16, 2013
STORY HIGHLIGHTS
  • Gold is considered a a safe haven asset and acts as a hedge against inflation
  • Boulden: Analysts say people who are selling gold are using the money to buy shares
  • All commodities are weakening at the moment; from oil to silver, writes CNN's Boulden

Editor's note: Jim Boulden is a correspondent for CNN's international programming based in London, where he covers a wide range of business and news stories. Follow him on Twitter.

(CNN) -- With gold prices officially in a bear market, investors must ask themselves if this is the time to buy?

I remember a gold bug telling me at the beginning of the gold bull market, around 2010, that gold would hit $2000, guaranteed. It never did.

Gold prices hit $1,888.70 in August 2011 and with Monday's big drop, it's now more than 20% off of that, even with Tuesday's slight bounce.

Why? It depends on who you ask. Some say it's the slowing of the Chinese economy. Some say it's a slowdown in actual physical gold sales in the crucial India market. There is even a worry that European governments, from tiny Cyprus to far bigger Italy, might flood the market by selling off state-owned gold to raise funds.

The only reason to speculate on the big price fall is if you care which way gold prices are heading now.

All commodities are weakening at the moment; from oil to silver. But gold is supposed to have that extra luster. It's a safe haven investment after all. It's a hedge against inflation.

And aren't we still in the midst of an economic crisis?

Not if you look at share prices. In fact, analysts say people who are selling gold (or, more accurately, gold futures contracts since few people take delivery of physical gold if it's only an investment) are using the money to buy shares. Stocks with dividends give investors the chance to make a bit of money no matter what the market is doing.

So, gold is not sexy anymore. If more people, or governments, decide to get out of gold, it will only go lower. Of course it has a long way to fall to get back to 1980s and 1990s when gold was under $500. Then it took off during the bubble years of the new century, only to gain even more traction as the much of the western world plunged into economic crisis.

Now, it's a time of high unemployment, recession and austerity. Funny that gold is also suffering, while stocks hit record or multi-year highs. When will investors move money out of stocks and back into gold? Or will it take a steep drop in gold, similar to oil in the 2008, to bring investors back into the market?

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