Gold Investments Market Update

Gold fell yesterday (both gold and silver were down some 1%) in volatile trade which saw some very determined selling each time gold looked set to break out above $930/oz. There appears to be support at $890/oz to $910/oz and resistance between $930/oz and $960/oz.

As usual gold’s safe haven properties were seen yesterday as most international equity indices were down some 3% to 5% while gold fell only marginally. This has been the pattern in recent months and years when gold can be somewhat correlated to equity markets in the very short term (often falls but falls by less than stock markets) but is inversely correlated over the medium to long term (as seen in tables below).

Besides the uncertain outlook for equity markets, gold is also being supported by weakness in the dollar today and expected dollar weakness in the coming months as the Federal Reserve’s balance sheet deteriorates further and US budget deficits and the national debt rise very significantly.

Oil has recovered somewhat from yesterday’s sell off (up 1.7% this morning to over $49 per barrel). Gold has clearly decoupled from oil in recent weeks and months but should oil begin to creep up again as many analysts believe is probable, gold will likely move up in unison as investors attempt to hedge themselves from the burgeoning threat of inflation.

The first quarter has seen gold (and especially silver) again outperform most asset classes with gold rising in all major currencies (as it did in 2007 and 2008). Gold is up more than 4% in US dollar terms, nearly 10% in euro terms and 7% in British pound terms.

This outperformance is set to continue as the international financial and economic system remains close to collapse (as warned of by George Soros at weekend) and governments are attempting to avert deflation by debasing their currencies in an unprecedented manner and this will likely lead to stagflation in the coming months.

Mark O'Byrne

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