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Gold Gives Back Gains as Stocks Surgeby Peter A. Grant
Mar 05, AM 
Gold began the U.S. session in positive territory, but gains faltered ahead of $1600 as the DJIA pushed ahead to establish a new nominal all-time high. Stock market strength can at times sap safe-haven demand for gold. The dollar snapped back from intraday losses as well, adding further weight to the yellow metal.However, keep in mind that stocks have rebounded over the past four years largely on the back of super accommodative Fed policy. This was a primary driver in the gold market over the same period. In fact, the two markets were pretty tightly correlated up until around December. On glimmers of a more robust economic recovery, stocks began to diverge from gold. While those glimmers have yet to turn into a true light at the end of the long tunnel, the hope is drawing capital back into the stock market. Some of that capital is coming from safe havens like gold, although largely paper representations of the yellow metal. However, in a world where easy monetary policy is expected to last for many years to come (see yesterday's DMR), it wouldn't be surprising to see gold play some catch-up with equities at some point. This would be particularly true upon hints of heightened price risks. Years of easy policy by the central banks of the industrialized world means there are trillions in various currencies in the system just waiting to be employed. Such liquidity has led to bubbles in the past, and there have been warnings circulating about a new bubble in stocks for some time now. It just seems to many that the realities of the economy simply don't warrant new highs in stocks...and yet here we are. Ahhh, but the quest for yield trumps the fundamentals some times. If you can't get a decent yield because various central banks have rates pegged at or near zero, you eventually get pushed out along the risk curve. With risk comes the potential for reward, but sometimes risk begets trouble, as we've seen time and time again. Those that completely forsake their havens and hedges do so at their own peril. NEWSLETTER SIGN-UP Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here. |
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