Julian Jessop, the chief international economist at Capital Economics, opined in the paper’s Investor’s Notebook that the price of gold looks set to slip, barring some major “shock” from the euro-zone, Japan or China.
“Gold prices already reflect a substantial degree of risk aversion, perhaps even more than that built into US government bonds,” he told the FT.
In the two years since the credit crunch and stock market meltdown, gold futures have gained steadily, driven by investors seeking a haven from the perceived danger of inflation. Some go even further, saying they fear widespread economic meltdown.
In the U.S., companies like Goldline and the Superior Gold Group pitch gold as an alternative to fiat currency. They portray economic situations – from hyperinflation to complete collapse – that would make “guns, gold and seeds” the ultimate hedges.
U.S. consumers have responded, buying up physical stores of the yellow metal at record rates.
All this bearishness has translated into a strong bull market for gold, but in recent weeks, that has been sorely tested. Gold hit a high of around $1,266 per troy ounce in mid-June, but since then has had difficulty breaching the $1,200 per ounce line.
Jessop also cited the combination of an expensive dollar and high gold prices, which make the metal almost ruinously expensive in some other currencies.
However, another source of panic in the financial markets could jolt some life back into gold – Jessop mentions a break-up of the euro-zone, questions about the credit ratings of major debtors like the U.S. or Japan and potential trade wars as possible catalysts.
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