Asian stock markets followed their US counterparts in falling overnight and after an initial rally in Europe, indices are again under pressure (especially the FTSE which is down another 1.8%).
Gold has fallen as well but not by as much as most equity indices. While US indices were down between 4% and 5% yesterday, gold was only down by $3.00 to $938.80/oz. It fell as low as $920/oz in Asian and early European trading.
There is an increasing likelihood that the Bank of England is soon to embark on quantitative easing involving printing money to buy assets. Such measures by the Bank of England, the Federal Reserve and other central banks may lead to serious weakness in major currencies and create significant inflationary pressures in the UK, US and internationally. This is what Warren Buffett fears as per his warnings regarding the “onslaught of inflation” yesterday.
Fear and risk aversion continue to grip international financial markets and this should see gold well supported in the coming days.
This is especially the case as there are increasing concerns internationally regarding a sharp depreciation of the dollar. Thus, large emerging economies are seeking to raise their gold reserves.