Why chaos on markets isn’t moving the gold price
Is gold no longer a safe haven in times of turmoil?
There’s panic in Shanghai and Shenzen, chaos in Europe and today the world’s top financial market ground to a halt.
Gold goes up $5.
Whatever happened to safe haven buying?
There’s a lot of conspiracy theories about why gold’s been so lacklustre despite a world on fire.
Some are more convincing than others.
Without naming names (you don’t have to), Ross Norman, CEO of bullion brokers Sharps Pixley in London, explains why gold has been going nowhere.
Norman, the London Bullion Market Association most accurate forecaster coming in as the outright winner five times and a runner up four times, tells Arabian Money that “somebody big is sitting on the gold price”:
‘Gold is looking like the dog that just did not bark – but not uniquely so,’ he commented. ‘Most safe haven assets are looking distinctly lacklustre, including the VIX index.
Either 5,000 years of safe haven buying has just become bunk, or there is a desire to portray what it is evidently a financial and economic crisis as nothing to be concerned about.’
Norman is the most bullish analyst in the LBMA’s 2015 competition with a forecast of $1,321 average and a $1,450 high.
A more mundane explanation comes from Leon Westgate, an analyst at ICBC Standard Bank quoted by the FT as saying “at times of acute volatility in markets, gold’s long-term role as a haven could be overshadowed by short-term needs”:
“The precious metals markets were reminded yesterday that the utility of gold and silver at times of financial stress is primarily as a source of cash to fund margin calls and repair damage to balance sheets and bank accounts,” Mr Westgate said.
“It was also reminded that US Treasuries, not gold, are the default safe haven for the vast majority of financial institutions.”
Georgette Boele of ABN Amro weighs in on the topic in the Dutch bank’s Wednesday research note arguing that gold’s safe haven status has been tarnished by speculators:
“At the height of the global liquidity crisis (when there was a shortage of liquidity) gold prices dropped sharply because investors valued cash more than gold.
“This suggests that at times of severe crises, gold could not live up to its safe-haven status. The variation in the gold price has coincided with a buildup and liquidation of outstanding investor positions in gold.
“This is not a positive development for a safe-haven asset, because significant investor activity could indicate that it is used for speculation rather than as a safe haven.”
Image by Simon Mugridge