The punters and ‘gold as an inflation hedge’ believers might not like it, but the precious metal is a volatile investment to ride at the moment.
After peaking at a record $US1033 on March 17, it has fallen $US130 an ounce since; or down around 12%.
That’s a substantial fall and not in keeping with the line that in volatile times gold is a haven: it is if the momentum is favourable but since before Easter and the Bear Stearns problems the momentum has shifted.
And yesterday the stockmarket threw caution to the winds, said the $23 billion in losses and billions more in new capital being sought by Lehman Bros and UBS (and the losses from Deutsche Bank) was good news (whereas a month ago it would be doom and gloom).
So along with a lot of other investors, gold bugs could be looking around and wondering what has changed.
It seems there was a new quarter, all the bad news of the March quarter had been ruled off, it was a case of ‘let’s go, onwards and upwards and damn to consequences.
There is now a definite correlation: when equities are doing well, commodities will do badly. How long that lasts is questionable: until the next big equities contraction or failure.
But the US fed has drawn a line in the sand a no one big and powerful will be allowed to fail, so bad news from UBS, Deutsche Bank and Lehman Bros finding more capital, is all the way ‘good news’
As a result most commodities (except some scattered farm products) were hit.
But gold was belted and no rebound ahead of Friday’s US jobs figures will disguise the fact it has been a tough two to three weeks.
Newcrest shed $1.64 yesterday to end at $32.05, Lihir shed 16c (4.5%) to $3.37 and Newmont eased 8c to $4.85).
Gold for immediate delivery yesterday fell $US34.18, or 3.7 percent to $US882.70 an ounce; It bounced back above $US891 an ounce before easing in afternoon trading. In Europe and the US it jumped to $US900 an ounce on buying by optimists in the wake of comments by US Fed chairman, Ben Bernanke that the country’s economy could dip into recession this half.
It was gold’s first fall below $US900 an ounce for the first time in six weeks as investors shifted money to equities on hopes banks are rebounding from subprime- mortgage losses.
Some commentators said the recent wide price fluctuations in precious metals had reduced investor demand. Gold, silver platinum and palladium have all been very volatile recently: all reaching record historical highs.
That has a definite impact on demand, especially from the jewellery trade. Gold consumption in the big markets of Asia, India and the Middle East fell sharply in the fourth quarter. China was stronger (and is now also the world’s biggest producer).
The deleveraging of world financial markets is biting into commodities as it has bitten into other markets. Copper is weakening and forecasts yesterday of weaker growth in China and East Asia over the rest of 2008, won’t be good news for base metals.
