Gold’s safe-haven status put to test this week
LONDON — During the global stock meltdown seen this past week, gold’s usual safe-haven status was also set aside as the commodity became just another risky asset.
With jitters likely to remain across all asset classes for the next few days, volatile trading conditions in gold next week will make longer-term price direction too difficult to call, analysts said.
“The apparent quest for liquidity among global investors has made gold a victim of its own recent success,” said precious metals analyst Jon Nadler of Kitco Bullion Dealers.
Tuesday’s shakeout in the global stock markets abruptly put an end to spot gold’s 14 percent climb from its low in 2007.
Since Tuesday, gold has given back 5 percent of those gains as U.S. stock futures slide amid concern over the health of the U.S. and Chinese economies and over the dollar’s weakness against the Japanese yen.
This weakness would seem to fly in the face of gold’s more traditional role as the safe-haven investment. Although gold is usually the beneficiary of uncertainty, this time it has fallen in line with weakness in stocks, said Jon Bergtheil of JP Morgan in London.
“Often when there are problems in other markets, people tend to think gold should rise,” said precious metals analyst Rhona O’Connell of GFMS Metals Consultancy in London, “but it usually doesn’t because it’s an insurance policy.”
Investors with margin calls on stock investments have had to sell gold to clear up capital to meet those margin calls and pay for those losses, analysts said, adding that gold’s steady rise this year has made it a vulnerable target.
Moreover, because the dollar has been thrown around in the wake of the stocks saga, it has contributed to gold’s weakness, Bergtheil said.
Although the dollar has climbed some 0.6 percent against the euro since Tuesday, investors have focused on the dollar’s weakness against the yen as weighing heavily on spot gold prices.
Over the short term, the gold market should focus more on the health of the U.S. and Chinese economy, while more traditional factors such as oil and geopolitical tensions take a back seat, O’Connell said.