Monday, October 10, 2011

Gold market has an alternative view

The gold market is in disarray with an alternative view to the global crisis. In fact, all of the precious metals have declined as if there has been a solution to the debt crisis. In three sessions, gold has fallen $200/oz last month and is far from its highs in early September.

The dollar rally may have something to do with this decline, but it is an odd event given the view that gold is perceived as a safety instrument.The VXX index has fallen from its highs but is still at elevated levels. Gold is at early August levels.

Central banks still seem to be buyers with Thailand, Bolivia, and Tajikistan all increasing their gold reserves. It is the speculators who have exited the market. The high prices is causing a decrease in demand. High prices eventually have a bit in demand and margin has started to make the cost of speculator higher.

Stock are still in a range but there has been a clear movement to higher levels since the lows in late September. We think the optimism in the gold market is misplaced. There is room for gold to retouch highs as the EU debt and banking crisis continues. 

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