Global investors reject gold

August 8, 2012 | Last updated on August 8, 2012
2 min read

In tough markets, investors have historically turned to safe-haven investments such as core sovereign bond markets and gold, reports Financial Times contributor Peter Tasker, a Tokyo-based analyst.

But—to the dismay of gold bugs everywhere—these days are long gone.

Gold is acting more like a “risk on” asset, and has moved in sync with markets over the past year. And precious metals prices have indeed been stagnant in recent trading, reported the Wall Street Journal.

Gold opened in positive territory yesterday, but slipped lower throughout the day as a pullback in the euro put on pressure. Since gold futures are priced in U.S. dollars, they become more expensive to investors using other currencies when the dollar strengthens.

Around the world, China’s gold imports increased 172% on the year in July, but are still down to 68 tons from the 75 tons imported in May. India’s gold prices are also lackluster, reports Reuters, due to a weaker rupee outweighing leads from overseas markets.

Analysts predict investors have abandoned gold stocks for the time being, as they wait for monetary policy changes from global central banks.

So, why has it toppled from its pedestal? Overvaluation could be the culprit; over the past decade, its price has gone from $280 per ounce to $1,900.

Read: How high can gold go?

Jason Pereira, financial consultant at IPC Investment Corporation, agrees. In May 2011, he contributed to an Advisor’s Edge Report Faceoff about the value of gold, saying, “I understand why people are bullish, but in the end it’s just a shiny yellow metal. Precious metals are treated as an alternative currency, driving the price to a level where almost every possible use for it is no longer cost-feasible — it gets priced out of the utility market.”

He says using historical data alone doesn’t validate investment in the metal, and also points out we’ve been off the gold standard for more than 40 years.


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