Gold prices broke down through 1220 (USD/oz) yesterday, with the trend continuing to look down in pre-market trading today. This has left many gold bulls scratching their heads, wondering if people don’t understand the probable future effects of US and international debt, rising interest rates and few true safe havens left in the world today.
Reuters International put out a nice article overnight explaining some finer points of the bear case – specifically, that gold may have lost it’s traditional safe-haven status as more investors have learned how to trade currencies. For example, recently the US Dollar – Japanese Yen currency trade offered more return than simply trading in and out of gold. If such a trend persists it may put gold in a bad spot; logically gold would then revert to commodity pricing “rules”, which to this Gold Enthusiast’s eyes would price it between 850-1050 USD.
That would be bad for gold bears indeed. At least until the next major geopolitical crisis, when all currencies would probably drop and investors would flee for … gold? Now there’s a thought. You can read about this interesting aspect of the bear case in today’s featured article.