The gold barometer

by David Taylor

Everyone by now has heard of the gold story. It's risen consistently and steadily over the past ten years and has shown few signs of slowing down. The beauty of gold is that investors often find a reason for investing in the precious metal in almost every type of financial landscape (boom, recession, recovery, whatever!). 

Specifically it has been bought up over the years as a 'hedge against inflation' as countries print money, as a 'safe haven' investment when things start to go pear-shaped, and as a store of value when other investments prove uninspiring.

With this in mind, it's always interesting to watch gold as a way of working out what's going on in the wider world.

What we're seeing at the moment is a very robust gold price. That begs the question...why? Why is it pushing higher? The answer is that gold traders the world over are still unsure about the international macroeconomic environment. There are many risk factors - from sovereign debt issues in Europe (including the recent credit downgrades to hit Greece and Portugal), to economic woes in the US, and of course recovery issues for Japan.

We also know that China's demand for gold is a growing factor on the international stage. In fact the latest research shows that China imported more than 209 tonnes during the first 10 months of last year. That represents a five fold increase on the estimated amount imported the previous year.

Fact is gold has successfully pushed higher, and there's no doubt it has further to go.

What's noteworthy right now is that it seems to have stalled around the $1,400 US/oz level. As we can see from the equities market, most of the recent news to hit the markets has now largely been factored in. There's really no where to go at this point. As such both equities and gold have actually been in a relatively narrow range these past couple of weeks.

Markets are waiting for the next catalyst. No doubt when we see the price of gold move in one direction or another, it will be an indication that the fundamentals have shifted once again. That hasn't happed yet though.

David Taylor


The content in my blog is non advisory, please do not interpret this as advice in any way shape or form. These are just my thoughts and nothing I say should be acted upon.

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