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Gold Experiences an Identity Crisis

Cowboy

Wait for it.
GOLD Site Supporter
Interesting article. :wink:


With safe havens like these, who needs risky assets?
Gold is down 9.8% in December after Thursday's 0.6% decline, the fourth consecutive daily drop. The sell-off has lopped almost $171 off the price, leaving bullion at $1,574.60 a troy ounce, the lowest closing price since July 12.
The decline accelerated this week even as frustration mounted at halting moves by European leaders to address the continent's sovereign-debt crisis.
Despite its reputation as a safe investment in turbulent times, gold fell 5% on Wednesday, as investor worries about Europe's failure to find a solution to its woes pushed the euro below $1.30 for the first time since January.
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Instead of buying gold, as investors often have in recent years when the going has gotten tough, they are dumping it in favor of other traditional bunker assets—notably U.S. Treasurys and the U.S. dollar, which is up 3.3% against the euro this month. And investors lately have often sold gold in tandem with more traditionally volatile assets, like stocks. On Thursday, for instance, gold and the S&P 500 stock index both tumbled around the time the head of the International Monetary Fund expressed a glum outlook. Still, the S&P 500 ended the day up 0.3%.
"Gold is no longer a safe haven," said Adam Grimes, chief investment officer at Waverly Advisors LLC, a Corning, N.Y.-based firm that advises pension funds and mutual funds. "The bigger picture really shows me that gold is trading as a risk asset."
Gold's decline is driven by various forces, analysts say. Some investors want to lock in gains before year-end, and gold is still up 11% this year, making it a rare winner. And a rising dollar puts downward pressure on gold futures, which are priced in greenbacks.
The drop also reflects concern so many institutional and retail investors have been speculating on gold—betting it will continue to soar—that it may not provide the customary protection if the rest of the market is ducking for cover. "If you're holding gold, you could still get caught out" in a widespread sell-off, said Hayden Atkins, a Macquarie Group analyst. "When things get seriously bad, you might want to have cash instead of gold."
Last year, gold was proving the ultimate safe haven. When Greece's pile of sovereign debt was sparking fresh concern, investors drove prices to record highs, before adjusting for inflation, during May and June.
At that time, investors were also dumping stocks, burnishing gold's refuge reputation as a refuge. And gold shot up even as the dollar was rising for much of that spring, showing prices can climb even against that headwind if investors want it badly enough.
Things have been different recently, Mr. Atkins said in a research note this week, noting gold has been falling and the dollar climbing "when investors become more worried about the euro."
"Rather than debate the logic, we think investors would be better served by observation of current market trends," he wrote. For Mr. Atkins, gold benefits when there is what he calls "an optimal level of concern," when investors are worried but not panicked, in essence.
To be sure, while viewing gold only as a safe haven can be perilous, so can ignoring that many investors still see it that way at least some of the time. As Mr. Grimes put it, "There are days when it moves as you would traditionally expect."
This month isn't the only recent example of gold's startling ability to swing from insurance policy to hot potato.
In August, gold rocketed 12.3%, the largest monthly gain in nearly two years, as investors reacted to the decision by Standard & Poor's to downgrade the U.S. credit rating.
The following month, even as fears of a repeat of the 2008 financial crisis spiked, investors reversed course. Instead of flocking to bullion, investors dumped it, and gold prices ended the month down 11.4%.
That was the single-biggest monthly drop since October 2008. So far, this month's would rank as the second-steepest.
The December sell-off, like September's, is at least in part due to investors seeking to cover losses elsewhere, according to analysts. The approach of year-end highlights the incentive to lock in any gains.
Yet those kinds of calculations underscore the nuanced ways in which investors view gold as it nears the end of its eleventh consecutive year of rising prices—and what could be its fourth straight year of double-digit gains in percentage terms.
http://online.wsj.com/article/SB100...3a25fb870dc7b8Z3&mod=WSJ_hpp_sections_markets
 

bczoom

Super Moderator
Staff member
GOLD Site Supporter
"When things get seriously bad, you might want to have cash instead of gold."

Things have been different recently, Mr. Atkins said in a research note this week, noting gold has been falling and the dollar climbing "when investors become more worried about the euro."

IMHO, gold is down because only because of the strengthening of the USD vs. the Euro. Once the USD's fiat currency status is fully realized, the luster (pun intended) of precious metals will again push them up.
"Rather than debate the logic, we think investors would be better served by observation of current market trends," he wrote. For Mr. Atkins, gold benefits when there is what he calls "an optimal level of concern," when investors are worried but not panicked, in essence.
 
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