Don’t count on gold in times of uncertainty « Mining Blog

Don’t count on gold in times of uncertainty

20. December 2011,

For many years, the “received wisdom” on investing in gold has been that it’s a “safe haven”, or a “hedge against inflation” in times of economic uncertainty.

With the euro in (or close to) a feared collapse, you’d therefore expect funds and speculators to be snapping up the gilded metal – and the price to rise even further than during the past few months.

But not a bit of it – according to an article this week in Moneynews (19 December 2011).

This tells us that the price of gold bullion has dropped more than 17 percent from the all-time high reached in September, “as strapped hedge funds and sovereign funds sell the precious metal to raise money and the strong U.S. dollar strips it of its safe haven status”.

In fact, some experts are predicting the gold price “could go as low as $1,000 an ounce in the foreseeable future”.

Michael Murphy, CEO of hedge fund, Rosecliff Capital, has told CNBC that, though” gold was a safe haven, a hedge and a speculative trade all at the same time” nonetheless,”traders are finding better hedges, better safe havens, and better speculative commodity plays than long [betting long on]gold.”

Stephen Weiss of Short Hills Capital agrees, saying that: “When an asset is thought to work in any market, that is the surest sign of a bubble”, adding: “I believe we will hear about massive central bank selling to put currency in markets.”

A recent Reuters poll of hedge fund managers, economists and traders also shows they believe the price of gold price will dip below $1,500 an ounce in the next three months. But they don’t consider it’s played out by any means – although they don’t think the price will reach another peak until late 2012 “at the earliest”.

In the meantime, if the basic rules of supply and demand are followed, we’d expect at least some high-cost gold mining projects to be delayed, or even go to the wall.

However, some well “cashed up” gold-focussed mining companies will doubtless be looking to acquire further control of lower-cost deposits, or buy into junior exploration companies,taking advantage of a drop in their share price. And then wait for the market to rebound.

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