What's Bugging Gold?

Gold usually shines in a crisis. But thanks in large part to changing views of China, the problems swirling in Europe and Korea have barely budged gold prices.

In just the past week, Ireland has been forced to take a bailout, Portugal has claimed it doesn't need any money and Spain has warned that speculators who bet against its bonds are cruising for a bruising. Oh, and North Korea started shooting at South Korea.

None of these events serves to make the globe look safer for investors or anyone else, for that matter. Yet gold, which has been known over the years as the go-to investment at times of distress, hasn't caught fire, in contrast to its breakouts in some earlier crises.

Part of the answer lies in the breakneck pace of gold's rally this summer, when investors began anticipating a new round of Federal Reserve aid and again when the Fed announced the launch of the second round of quantitative easing. After that run-up, even longtime gold bulls were heard predicting a pullback.

But another explanation centers on a changing view of China's role in the global economy and financial markets.

China's thirst for growth and its demand for natural resources would spur a multiyear boom in markets for food, agricultural products, metals and other goods. But facing worrisome food price inflation, China is tightening monetary policy in an effort to quell some of that demand. It has tightened bank reserve requirements twice this fall, and is expected to do so again in coming months.

With China and other emerging economies trying to keep a lid on the hot money surging in from slow-growing rich countries, the one-way bet on rising global commodities prices is suddenly looking like much less of a sure thing.