The observation that gold has been a disappointing investment of late should come as no surprise to anyone in the investment world. The fact that this has occurred in the context of developments that would normally push gold prices higher is notable. But the most consequential hypothesis of all is that gold might be losing its traditional role in a diversified investment portfolio.

To say gold has underwhelmed investors in the past couple of years is an understatement. It did not participate in the surge upwards in nearly all financial asset prices; and it has not provided protection in the more recent downturn in risk markets. Throughout this period, gold has not benefited from rock-bottom interest rates that compensated for one of its main disadvantages as a financial holding — namely, that gold holders do not earn any interest or dividend payments. It has also shown an unusual lack of sensitivity to multiple geopolitical shocks, Greek-related concerns about the single European currency, and the vast injection of liquidity by central banks.

The performance of gold has been so dreary as to encourage a growing number of hedge funds to bet against the asset, notwithstanding its price decline of 8 per cent year to date (and 16 per cent over the past 12 months). Indeed, positioning reports point to large shorts.