The price of Gold is not really going up at the moment at $ 1,642. For investors who had recently bet on a sharply rising Gold price, the situation seems almost desperate. Because things should actually be moving upwards? And after all, the price had already climbed to $ 1,700 on Monday. What is going on right now? Ipek Ozkardeskaya of Swissquote has nothing more to say on the subject of Gold at the moment than that the negative correlation between Gold and risk investments (e.g. shares) has been broken again. Gold would not offer any protection for investors recently, as the price of Gold fell to as low as 1,630 Dollars tonight. finanzen.net is currently headlining with “Safe haven the f….” when it comes to Gold.
Gold price barely holds up at the moment
Actually, Gold as a “safe haven” should be the flight destination of investors in times when the stock market crashes as badly as in the last few days (risk off scenario). Considering the losses in shares, the price of Gold should actually have risen strongly. But in relation to stocks, Gold is currently performing rather weakly. The Dow 30 has lost 4,400 points since March 4th. The Gold price, however, is currently trading at exactly the same level as on 4th of March, at $1,642. The bottom line is that there has been no price gain, but an asset preservation took place in Gold. To put it simply, for this short time window. But why, yes, why has the Gold price not shot through the roof in the last few days?
What is going on?
We had already addressed this topic several times in the last few days. Away from the normal market logic, the main problem at present is that share prices have fallen far too sharply. The price of Gold also fell significantly in the course of the financial crisis. Therefore the current sideways trend is not that bad. It is quite conceivable that the rise in the Gold price has only been postponed. Because currently two reasons seem to be responsible for Gold not making any headway. As already described in the last few days, speculative investors such as hedge funds, which for example hold equity positions on credit, will probably have to turn profits from Gold into cash in order to provide their brokers and banks with new cash collateral. Therefore equity positions can be kept open. In addition, new cash must generally be built up in the books following the sharp losses in equities. Dan Oliver of Myrmikan Capital sums it up at Kitco.com. Much of Gold’s resistance (on its way up) is due to margin calls and investors having to sell Gold to get cash.
But also normal funds and large investors are likely to turn Gold holdings into cash at the moment. Because if they are currently suffering heavy book losses on their existing equity positions, they could probably use the additional cash to buy more shares and thus lower their average entry prices. The Gold price is likely to suffer from this at the moment. But there should probably still be enough investor money and enough attraction in the coming weeks for the Gold price to pick up again on its way up? Because interest rates are currently falling worldwide, which makes interest-free Gold more and more attractive. Today the ECB will probably also continue to lower interest rates. Can that be a trigger for a boost in the Gold price?