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Gold rockets higher as risk aversion sets in

Gold rocketed back on top of the psychologically important $1300 level on Wednesday as renewed geopolitical tensions and increasing risk aversion drove fresh buying in the metal and forced more short covering.

The recent theme in markets has been concern over equities which have continued to slide recently. This is not too surprising, however, as many have been looking for a market top in stocks for some time. In addition, bonds and notes have continued to march higher as rates have continued to fall-this could potentially be a good indication of things to come. In fact, the German five year bond or Bobl reached a new record low yield of just .28 percent. This would also seem to make the case that risk aversion is alive and well and increasing.

Gold has broken a down-sloping trend line and has also once again held its previous trading range levels.This could potentially set the stage for a retest of the July highs in the $1341 area. Should the geopolitical backdrop worsen, we could potentially see gold breach that level very quickly and move significantly higher.

In addition to rising risk aversion, gold may stand to benefit from asset reallocation as more and more investors cash out of equities. Time will tell how deep the potential correction in stocks may run, but an extended move lower could potentially strengthen perceived safe-haven assets like gold, silver and the U.S. dollar. Gold and precious metals will likely continue to take their cures from any geopolitical developments as well as the equities markets. Following today's strength, more gains in the yellow metal in the coming sessions may be likely.

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07 Aug 2014 | Categories: Gold

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