Gold has long been seen as a 'safe haven' during times of economic uncertainty, but that theory has been proven wrong recently with the precious metal hovering near a five-year low price.
Given the enormous uncertainty that has faced global markets in recent times, including the potential 'Grexit' and China's sharemarket meltdown, one could easily have expected the price of gold to soar.
Instead, the resource has been absolutely mauled after experiencing one of its sharpest drops in recent memory on Monday due to a heavy selloff in China. It fell marginally further overnight to fetch just US$1,089.65 an ounce, according to the Fairfax press, which compares to the peak at US$1,921 an ounce in 2011.
Just as gold investors have been punished for holding onto the bullion, so too have investors in the gold producers themselves. Australia's largest gold miner, Newcrest Mining Limited (ASX: NCM), has plummeted 10.3% this week alone, while Beadell Resources Ltd (ASX: BDR), Northern Star Resources Ltd (ASX: NST) and EVOLUTION FPO (ASX: EVN) are down 23.5%, 4.4% and 5.3%, respectively.
The S&P/ASX All Ords Gold (Index: ^AXGD) (ASX: GXD), which tracks the nation's gold miners, is also down a whopping 9.8% since Monday.
Unfortunately for those investors, there are signs that the situation could get even worse from here. In fact, according to Fairfax, Morgan Stanley believes that as a worst case scenario gold could plummet to a low of US$800 an ounce – although that would rely on a sharp increase in US interest rates and likely another heavy selloff of Chinese equities.
Other forecasts aren't quite as bleak as the one provided by Morgan Stanley, although many agree that it has further to fall in the near future.
Indeed, the prospect of a hike in interest rates is enough to make gold investors squirm given that such a move would have a positive impact on the US currency, which has traditionally worked against the price of gold (as gold is quoted in US dollars, a stronger US currency makes it more expensive for international buyers which impacts demand).
While some investors will still try their luck on gold, 'Foolish' investors will recognise there is potential for far greater returns on the local sharemarket, especially thanks to the recent volatility that has created plenty of fantastic long-term opportunities.
