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Gold - the Goldilocks Asset - Not too hot and not too cold

Glance at online bullion news ( see ) and you see a proliferation of headlines declaring the 'end of gold' as a safe haven asset or a 'bubble on the point of bursting' - with as many also declaring 'gold is on the point of exploding to $3,000, $5,000 or even $10,000/oz' - there seems to be a polarisation in views - and neither are likely to be correct.

Presently gold sits towards the top end of its trading range at $1678 and awaits fresh impetus - physical demand is robust and there is good support below this market.

Gold started the year at $1410 and gained a massive $500 or so to its peak and has shed half of those gains to sit mid-way. It is neither too hot nor too cold as the Mummy bear would have said in Goldilocks, up $250 on the year to date. On an intra-day basis gold simply does not respond in the manner one would always expect - but in the main it does. The last decade has seen strong price gains based around a bullish shift in supply/demand fundamentals and this has been augmented by unprecedented economic concerns. For those with the prescience to put some of their savings into gold, they have been rewarded. Enough said.

What has been surprising in the last month has been the speed and manner of the sell off just a month ago just when the economy was starting to look deeply interesting and the VIX (or fear index) flew through 40. It's just that the manner of the sell off in gold has been quite un-gold like - it was particularly sudden and leaves many in the market perplexed. The short answer may lie in temporary strength in the US dollar prompting long liquidation on COMEX which triggered sell stops - maybe.

Goldilocks was a cautionary fairy tale about wandering off from a better path - gold bugs would do well to take heed - after all there are more than three bears in gold's tale.

Ross Norman
Sharps Pixley, London

14 Oct 2011 | Categories: Gold

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