Gold: Lost in Transition

Junior Mining Weekly (04/15/2009)
"Over the last several weeks the direction of gold has become - well, it seems to have lost its direction. We believe bullion is currently between being a flight-to-safety vehicle and being what is likely to be a hedge against inflation. With the renewed market optimism, some capital has been diversifying out of the safety of bullion. At the same time, the massive fiscal stimulus entering the markets is forecast by many to drive inflation, but just not yet. So bullion appears stuck between roles for the time being, and as such has become lost in transition.

With the onset of the global financial crisis, bullion's trading pattern has corresponded in line with our perception of a flight-to-safety hard asset. Gold’s run since autumn 2008 has been a true bull run, rising despite the strength of the U.S. dollar and outperforming virtually every other commodity and currency class and setting new highs in euro, UK pound and Canadian dollar currencies (among others).

Gold has also decoupled from the rest of the commodities complex. Prior to October 2008, during the price run in commodities, bullion moved somewhat in tandem with the rest of the metals. With the onset of the financial crisis, capital sought the safe haven attributes of bullion, contrary to most other commodities."

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