Turnaround in Gold Market Posted by James Randolph on May 18, 2012
Though the gold correction is surely still in full swing, a turnaround in the gold market has occurred, possibly a product of how other markets are faring in the current economic environment. The safe-haven status of gold as an investment and hedge has been questioned most recently as the metal lost a great deal of sheen because it failed to be buoyed by weak numbers in other markets. Now, however, gold is reacting much more typically as a safe-haven asset and financial protection that it is.
Gold surged 2 percent overnight after markets in the United Stats sank 1.5 percent. This is the kind of flow to safe-haven asset status that gold investors look for in a typical market. The worse the conditions in other markets, the higher the demand in the gold market as investors shun risk and hedge positions.
Because of the current correctional cycle, which has brought the price of gold below $1,600 for the first time since December, the downward pressure on price was enough to suppress the safe haven buying, which bypassed any rise in price even as other markets were having significant trouble.
The most recent cycle is also a lesson in the ownership of physical gold because the recent movement in gold and silver stocks has been on a 2008 level of severity. Anyone owning physical gold and silver is in relatively good shape and simply waiting for the bull market to resume after the correction, whereas gold stocks have been selling in something akin to a panic.
The stability of gold is what’s at issue in this market, and as gold prices surge higher that is becoming increasingly clear. The stability of gold as a safe-haven asset was at some points in question over the past couple weeks, with the odd commentator actually questioning the health of the bull market. With the recent price changes we see a commodity that is a very strong safe haven asset and very much valuable as a hedge against the risk in the markets. We have not and will not see bear territory in gold for many years to come and any report otherwise is propaganda and fear tactics.
The turnaround in the gold market is a welcome return to some normality, though we can be assured that the correction is still in effect.