In trading yesterday, gold futures jumped up, ending the day at a six-week high. Silver also got a boost as investors moved to safe-haven investments as the equity markets took a beating.
According to Bloomberg, “more than $100 billion was wiped from the value of world equity markets yesterday, and global shares are falling again today. Gold extended gains as the dollar headed for the biggest drop in a month against a basket of 10 currencies.”
Investors have historically used gold and silver as a hedge against decreases in the value of the dollar and moved towards these “safe-haven” investments during times of global economic and geopolitical troubles. With oil prices dropping significantly, European and Japanese economies struggling to pull out of recessions, and ongoing fears about the dollar’s value, there is a perfect storm brewing for gold investors. This explains why a recent Bloomberg report shows that since November 7th gold has climbed 9 percent from a four-year low.
“There are equity market concerns and an increase in the flight away from risky assets to quality,” said James Steel, an analyst at HSBC Securities (USA) Inc. in New York, in a telephone interview with Bloomberg. “Gold seems to be benefitting from that more than anything else.”
Most global powers are trying desperately to revive their economies by pumping more and more money into the system. These policies are creating justifiable inflation fears, causing net-bullish holdings in gold futures and options to more than double in the last three weeks, according to recently published U.S. government data.
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In the U.S., the Federal Reserve will be meeting next week and the main topic of discussion will be whether or not to raise interest rates. Typically, any sign that the Federal Reserve may increase rates would be bearish for gold. However, in a world of ubiquitous economic stimulus, higher borrowing costs for banks would not necessarily scare precious metals investors away.
James Cordier, the founder of Optionsellers.com, told Bloomberg, “Stimulus from every corner of the global economy is now entrenched, and that’s bullish for precious metals. This is a change of sentiment in a huge way, because investors stopped looking at U.S. interest rates possibly rising next year, to see the fact that every other major economy is easing at a breakneck pace to try and quell the slowdown.”
Finally, gold investors received more good news this week as it’s been reported that India, one of the world’s largest gold buyers, has eased import restrictions on the yellow metal.
At the time of this article, gold was trading at $1,228.40 an ounce, down -0.27% and silver was trading at $17.11 an ounce, up 0.11%.