May 23, 2024

Gold Demand Soars On Fears Of European Debt Defaults

After a sharp September price correction, gold is on track to hit all time highs.  According to a Bloomberg survey, 80% of the forecasters with the most accurate track records are predicting that gold will reach $1,950 by the end of the first quarter.   Investors world wide are fleeing paper currencies as the threat of debt defaults spread across Europe.

Ironically, central bank attempts to stimulate debt burdened economies by lowering interest rates to zero has contributed to the worldwide rush to gold.  Why would investors hold return free government debt with the added risk of principal loss?

As financial turmoil spreads across the globe, gold traders are the most bullish since 2004.

Gold traders and analysts are the most bullish in at least seven years as investors accumulate metal at the fastest pace since August to protect their wealth from a widening European debt crisis.

Gold exceeded $1,800 an ounce for the first time in seven weeks on Nov. 8 and hedge funds are holding their biggest bet on higher prices since mid-September, Commodity Futures Trading Commission data show. The metal is rebounding after tumbling as much as 20 percent in three weeks in September on demand for what are perceived as the safest assets. Almost $9 trillion was wiped off the value of global equities since May and yields on Italian and Greek bonds rose to euro-era records this week.

“Throughout history gold has protected people from the sort of turmoil that we’re seeing,” said Mark O’Byrne, the Dublin-based executive director of GoldCore Ltd., a brokerage that sells everything from quarter-ounce British Sovereigns to 400-ounce bars. It’s “an important thing to own when there is this sort of volatility in stock markets and concern about currency devaluations.”

Gold climbed 24 percent to $1,766.72 this year, heading for an 11th consecutive annual advance. It’s the second-best performer behind gas oil in the Standard & Poor’s GSCI Index of 24 commodities, which rose 5 percent.

Technical indicators suggest the rally that began in September has further to go. While gold jumped 14 percent since reaching an 11-week low Sept. 26, its 14-day relative-strength index is at 58, below the level of 70 that indicates to some who study technical charts that the metal is poised to drop.


Gold - courtesy

As discussed previously in this blog, proclamations by the mainstream press after the September gold price correction that the “gold bubble had burst” constituted a contrarian buy signal for gold and silver.  The September correction was simply another opportunity for long term gold investors to add to positions at bargain prices.

The fundamental reasons for owning gold and silver have not changed and are not likely to anytime soon.