Wednesday, November 18, 2009

More evidence for a shift to gold

Reflecting more on the theme developed in my last post, I was fascinated today to  see the following chart and commentary today from David Moore of the Commonwealth Bank  (Commonwealth Bank of Australia ):

Chart of the Day:  Index of the gold price and the EUR/USD

Source:  CBA
  • USD fragility has been an important factor underpinning the gold price since early-November.  However, we have also observed something of a ratcheting effect in the gold price.  The gold price has continued to trend higher since early-November even as the USD, although being at a low level and having a fragile feel, has essentially fluctuated about a relatively flat underlying trend.
  • This pattern suggests that either there is a compounding of investment flows into gold as a result of continued USD fragility or that other factors have contributed to the strength of the gold price. 
  • Such other factors might include inflation concerns on the part of some investors or anticipation that central bank net gold sales will remain at a lower level in the coming year.
It will be interesting to see if individual investors follow the lead of the Chinese Government and continue to move to non financial assets like gold or commodities to store value.

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