Gold has again been the biggest winner from continued market volatility, spiking through $1800 an ounce in Thursday trade, with investors shying away from continued Eurozone debt concerns and the prospect of further quantitative easing in the US.
The main driver for gold was continued fears by global investors about the US economy, with Federal reserve Chairman Ben Bernanke committing on Monday night to keep rates near zero for nearly 2 years, and with market commentators widely expecting a further round of quantitative easing to be announced when Bernanke speaks at Jackson Hall in 2 weeks time. The other major driver for the flight to gold was the ongoing Eurozone sovereign debt fiasco, now bring French banks into play as being at risk. Alexandr Novikov analyst at Unicredit Securities, says investors are are looking for safety, and that despite its surge from as low as $695 per ounce in the wake of the Lehman Brothers collapse in 2008, gold was still seen as providing that safety.“All risky assets are being sold in favor for gold and stable currencies. It is a traditional move which has not been surprising. However, gold is just a hedge instrument for capital protection rather than for significant and short term gains. As soon as the economy bounces back and investors see the first signs of sustainable economic growth, investors will bet not to miss this and relocate their money into equities. Gold will continue to grow and part of investors’ funds will still remain in gold assets spread among gold producers’ shares, allocated on gold accounts in banks and invested in golden coins, for some time yet though.”Novikov added that the prospect of a ratings downgrade for French financial institutions could see gold push beyond $2000 an ounce, but he also warned that market volatility which has gone close to triggering margin calls in the last week, could also trigger a correction in gold.“We expect the ratings of France to be corrected and it certainly will be another signal for investors to continue equities sell of and reinvestment into gold. I expect gold prices to reach $2000-$2100 per ounce at the end of 2011 because the economic situation is not likely to improve in the next few months. However, given that American funds which own huge portion of gold may start selling it to the market due to increased margins and that can lead to gold price corrections.” Alexei Ivin, Head of international markets brokerage services at BCS, says gold currently looks more attractive than any other financial instrument. He added that a dim currency outlook on the rouble was driving a strong Russian turn to gold.“In case the markets continue to fall, which is highly probable, the rouble will accelerate to its historic low levels and probably the result will be its significant devaluation. Assusming past experience neither the Government nor the currencies as well as stocks will change the situation and prevent significant market losses and in the Economy. That’s why in this case gold is the most confident and strong instrument for everyone who wants to save and protect their capital during the volatility on the markets.”