Is Gold really a safe haven in times of crisis?

Commodities / Gold and Silver 2011 Sep 23, 2011 – 02:24 PM

By: Sam_Chee_Kong


Best Financial Markets Analysis ArticleThe price of gold varies inversely with certainty. The more uncertain the environment, the higher the price of gold because people will scramble for gold as a hedge against uncertainty.  However, certain events for the past two weeks have baffled many of us. A couple of  weeks ago, when Switzerland pegged its CHR (Swiss Franc) at 1.20 to the Euro, it immediately devalued its currency by about 8%. Since then, the Swiss Franc often viewed as the safe haven among other currencies, has lost its luster.

After having one less competitor for safe haven, the price of gold will supposedly rocket up, instead it went down about $50 when the news hit the streets. Again, over the last weekend, rumors are circulating of a probable Greek default by last Sunday, again the price of gold again closed down more than $40.The main culprit being the huge rebound of the US$ over the weekend. It spiked from 73 to 77 on the US dollar index.

The problem is, if the whole of SEA or Southern Europe collapses and so does the Euro, people will again look for an alternative safe haven currency and it will be the US$. When economies collapse, people will be scrambling for gold and hence will push its price up. At the same time institutional and hedge funds will be scrambling to buy US Treasuries as a safe haven and will eventually push up the US$ due to its demand. So, what will it be of the price of gold, when at the same time, its competitor (US$) is also gaining confidence?

A good example is during the last financial crisis in 2008, the price of gold despite being a safe haven went down from more than $1000 in March to about $700 in October.

Whereas, the US dollar index jumped from a low of 70.70 in March 2008 to 87.80 in October 2008.

Click below to read the entire article:

by Sam Chee Kong

© 2011 Copyright  Sam Chee Kong – All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2011 – The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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