Gold prices stabilise after dramatic fall
The price of gold rises slightly following its biggest one-day fall in 30 years, but the precious metal is likely to come under further pressure from investors.
Prices increased by 1.5 per cent in European trading this morning, although this recovery looks in danger of stalling.
“Given the scale of the sell-off, I would say that the rebound is not that impressive,” said Tim Riddell, head of ANZ Global Markets Research.
Yesterday, gold prices fell by 9 per cent, tumbling by $140 an ounce to reach a two-year low of $1,361.
“At some point gold could well be subjected to participants looking to own gold at cheaper levels than over the last few months,” said David White, a trader at Spreadex. “But, critically, calling the bottom on any such process is hazardous at best.”
Safe haven
Gold has risen in value over the last decade, with investors treating it as a safe haven during the financial crisis.
In recent weeks, it has been falling for a host of reasons:
* The prospect of lower inflation in the US if quantitative easing comes to an end makes other forms of investment more attractive.
* There has been disappointing economic data from America, the world’s biggest economy.
* In the midst of its bailout from the EU and IMF, Cyprus is selling off most of its gold reserves, driving down prices.There is speculation other eurozone countries, like Spain and Italy, could follow suit.
* The Chinese economy, the second biggest in the world, is not growing as fast as expected. This makes it less likely to buy commodities like gold, again pushing down prices.
* India is buying less gold as a result of a 50 per cent import tax.
* The bombings in Boston have also unsettled investors.
Neil MacKinnon, from VTB Capital, said: “The Boston bombings have only added to the sense of unease amongst investors …. equity markets have slipped in the past few days on worries that the US and Chinese economies have hit an air pocket of economic activity.”
It must be music to the ears of billionaire investor Warren Buffett, who has long shunned gold.
He argues that unlike a business, gold does not have any use, and investors are just betting on what a precious metal may be worth in future.
‘Long on fear’
He once said: “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time.
“But you really have to hope people become more afraid in a year or two years than they are now.
“And if they become more afraid, you make money; if they become less afraid, you lose money, but the gold itself doesn’t produce anything.”