Gold Bullion (GOLD)

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Gold's perception problem

While the markets weren't kind to gold following their disappointment at Bernanke's statement to Congress, it doesn't mean the metal is out for the count and its recent performance has been no worse than that of many other market sectors
Author: Geoff Candy
Posted: Friday , 08 Jun 2012

GRONINGEN (Mineweb) -

There is no mistaking the disappointment markets felt yesterday at Ben Benanke's "failure" to reward expectations of dovish comment.

Despite the recent poor jobs numbers out of the US, the Fed Chairman's comments were non-committal, saying that the committee was continually reassessing the situation. Unfortunately for gold, the market was hoping to hear him say that a further bout of QE was imminent and this he didn't do.

As UBS analyst, Edel Tully points out, however, In reality, gold yesterday responded to the fact that Bernanke's testimony did not contain much more than general statements, failing to take into account that he was quite clear about leaving all options on the table."

Indeed the bank's economics team actually believe that risks for more monetary stimulus have increased".

The problem, as she sees it, is that recent expectations within the market were for a far more urgent application of QE than currently looks likely and gold suffered as a consequence.

For Tully, "the problem for gold here is that market confidence in the metal is now much depleted and trading dollars will shy away from this market in consequence. Gold needs to repair confidence first before it can ever start to reflect the long QE trade again.

Part of this confidence stems from the fact that many in the speculative community had previously viewed the metal as a safe haven asset but, recent moves both by it and the dollar have left the impression that this is no longer the case.

But, while the metal, has been falling lately, most other things have been as well.

As the Standard Bank commodities team wrote in its daily note yesterday, "Since the Greek elections at the start of May, financial markets have struggled to cope with the growing uncertainty that is brewing in Europe and also threatening growth elsewhere. As we have seen in the past, when risk aversion rises, the dollar benefits. With the US dollar strong, many commodity prices have been under severe downward pressure, especially in the absence of strong real demand.

"We compare the performance of metals, Brent crude, the dollar and the S&P... While the dollar (on a trade-weighted basis) performed the best since the start of May until yesterday, gold is the second best performer among the assets compared. Gold's performance over the past month has not been positive but has been the best of the bad bunch."

Speaking to Mineweb.com's Metals Weekly podcast, this week, Investec Asset Management investment strategist, Michael Power, reiterated the point saying of recent market comment, "I'm not sure that gold has been that volatile especially when you compare it to other asset classes. Yes, it has its periods of up and down, but they're relatively speaking quite tight and if you look at the long-term map, it's actually quite an impressive rise that you see in gold over that period and I think that's going to continue."


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