Gold rallied sharply yesterday, for the fourth day in a row, on sharply higher oil prices (some 10%) and a weaker dollar. Gold gave up some of its gains overnight in Asia as the dollar bounced after recent sharp losses in volatile trade.
Gold’s rally yesterday had nothing to do with an increase in risk appetite. If that was the case, why have stock markets internationally been falling sharply again in recent days and yesterday? Quite the opposite is true, gold has been strong as risk aversion remains heightened (rightly so) as the economic outlook remains very uncertain.
Volatility in currency markets is extremely high and the dollar and sterling haev fallen very sharply in recent days on the deteriorating outlook for both economies. The question is whether the worst of global deleveraging is over – if it is then the dollar will likely resume its bear market. Another bout of deleveraging could see some more dollar strength but it is likely to be short term prior to the very negative fundamentals reasserting themselves and the dollar resuming its downward slide against most currencies and especially against gold.
Printing Money Not A Risk Free Panacea to Our Deflationary Woes
As governments and central banks internationally engage in a global currency debasement, those who think that printing money is a risk free panacea to our deflationary woes, will be found wrong once again. The UK is now in the midst of a sterling crisis and the risk is that given the scale of debt internationally (particularly Anglo Saxon economies), the scale of the global imbalances (huge US trade, current account and now budget deficits) and the scale of currency debasement, a global monetary crisis could be the ultimate unfortunate outcome.
PwC Finds ‘Gold is Serving Its Purpose as a Hedge of Wealth in Uncertain Times’
Gold has been one of the top performing asset classes again this year and has massively outperformed equities and commodities. Gold is up in dollar terms, strongly in euro terms and very strongly in British pound terms showing its qualities as a hedge against macroeconomic and systemic risk.
The 2008 Global gold price survey by PricewaterhouseCoopers has found, despite the global financial crisis, gold is holding its own. PwC finds ‘gold is serving its purpose as a hedge of wealth in uncertain times.’