Gold surges to new highs as equities dive

Global volatility countinues to drive gold prices up
With financial markets continuing to slide on renewed economic turmoil fears gold is continuing its spiral to yet new record highs above $1860 per ounce, with investors looking for safety in the oldest store of wealth.

­Gold on the COMEX surged above $1860, and has continued higher in Asian and European trade on Friday, as investors adopt risk off positions on European banking sector concerns and gloomy US economic data. Even the Swiss Franc has become less attractive due to recent Swiss government moves to fix the currency to the Euro.

In an interview with Hard Assets, investor Stephen Leeb, chairman and chief investment officer of Leeb Capital Management, said the gold prices continue to rise this year backed by sharp volatility on global markets, with the prospect of the US potentially looking at a third round of quantitative easing adding further upside, for silver as well.

“I think metals and commodities will continue to be a very good hedge against inflation. When Federal Reserve institutes will reinforce the uptrend in commodities. I believe gold will head higher. Above all, silver could be another good commodity position in current conditions, because it certainly has a history of being a monetary metal. And people will price it for that.”  

Sergey Filchenkov, Metals and Mining Analyst at IFC Metropol, says gold is the only reasonable and reliable commodity for investors in the current economic environment.  But he added that the run up in gold prices since 2008, particularly the gains this year, is indicative of a bubble, which is flowing into other precious commodities.

"The whole situation on the Gold market at some point resembles of a huge bulging bubble.  The price of gold has been increasing constantly and confidently through the whole year showing a 30% growth since the year start with no fear of correction.  To my view the price boost is highly supported by panic demand from investors representing a 30% of the whole demand for that precious metal as well as speculative motivation, on the back of zig-zag trends on the market and general uncertainty. However, the possibility of a gold price correction to $1500-1650 is possible if European government leaders work out a confident plan for current debt issues and US stock indexes stabilize. Any other financial instruments still perceived as risky compared to gold. For instance, we can observe a good price dynamic on diamonds spurred by the increase in demand from India and China, and a shortage of this commodity on the market. However, this instrument cannot compete with gold in terms of hedging of capital in the current market volatility"

Maxim Lobada, expert at BCS, says the correction of gold prices is very small but possible in the short term, if there is a clear resolution to global monetary policy and fiscal imbalance issues.

“The main factors for the gold price increase are fundamental and can be proved by the historic dynamics. I assume that after that significant increase a correction may follow. The market is fuelled by rumors and anxiety. Market participants play on ups and downs as usual, but more consciously right now.  Each time the US currency strengthens against other currencies the price of commodities decreases. Even the neutral statistic can turn the markets upside down and pull back gold prices as investors become bullish. Ultimately, as soon as Europe or the U.S. authorities announce a clear position on the monetary policy or regulations – the gold prices will fall.”