Movements in the gold market are becoming less and less predictable as the “Great Recession”
continues to alter how we look at global economics, currency markets
and attitudes toward risk. The traditional thought no longer seems to
apply in many aspects of our current situation.
Amongst the factors for today’s downward price actions are: a stronger dollar brought on by worries over Greece’s sovereign debt issues; and dampened risk appetite partly due to worse-than-expected weekly jobless claims sparking fears the economy is recovering much more slowly or not at all.
Factors pushing gold up later in the day involve sketchy rumours China may be seeking to purchase 191.3 tonnes of gold from the IMF and technical buying as some traders seek to cover short positions.
The factors limiting gold seem much stronger and likely to continue
placing downward pressure. But, these factors have a lot to do with
fear of another financial crisis bringing us back into the doldrums of
2008. And isn’t gold supposed to be a safe haven investors turn to in
unstable times like these?
Gold: Risk Play or Safe Haven Asset?
Historically, gold has held the distinction of being a safe haven
asset. A knight in shining armor fearful investors turn to in times of
financial crisis; the one tangible thing that manages to hold its value.
However, investors looking for a safe place to secure their capital
are now turning to the US dollar instead of gold, which is now lumped
with riskier holdings such as higher-yielding currencies, commodities
According to Dow Jones Newswires’ Matt Whittaker,
this shift in perception “has come about in part because ultralow
interest rates have helped spark investor buying in the metal.”
Fortunately, Whittaker points out in a later post, “the safety
allure of gold isn’t totally tarnished.” At least not in Europe where
investors are concerned Greece’s financial woes, as well as those of
other EU nations, may deepen. “The metal has recently hit a record high
On Thursday, the European Commission
reported that economic sentiment in the eurozone dropped for the first
time in nearly a year. Business investment has also fell 5.8 per cent
in the fourth quarter in the U.K. In regards to Greece’s problems,
Standard & Poor’s has issued a warning that the nation is in danger
of earning a junk status credit rating. Moody’s Investors Service has
said it also may cut the country’s debt rating if it doesn’t take more
aggressive actions to cut its deficit.
For my Overly Optimistic Bull Pals, analyst, trader and editor of the Market Oracle Nadeem Walayat says gold prices will reach $1350 later in 2010 before pushing as high as $2,000 an ounce.
By Melissa Pistill, Friday February 26th. Taken From Gold Investing News