Author: Lawrence Williams
Posted: Friday , 09 Nov 2012

LONDON (Mineweb) –

Gold’s price pattern since the results of the U.S. Presidential election has been an interesting one.  Most analysts had predicted that gold would rise if President Obama retained his position, and now other factors have come into play – perhaps most noticeably that the post-election nervousness about the path of the U.S. economy, coupled with no end in sight to the Eurozone problems (indeed things appear to be getting worse with expectations that the Eurozone is heading for recession – including mighty Germany).

What had been surprising about the path of the gold price through the past year or so is that it often fell back on poor global economic news when the old safe haven arguments for the yellow metal might have been thought to come increasingly into play.

To an extent that was because of relative dollar strength which meant that falls in the headline dollar price were not necessarily the case in other currencies – and given that the gold price tends to be quoted in U.S. dollars virtually everywhere as the general guideline price, the psychological impact of an apparent fall on investors, even if it hadn’t fallen back in their own currency, should not be underestimated.

But, since the U.S. Presidential election it has been noticeable that gold in general has been rising in price regardless of U.S. dollar strength – admittedly this has only been over a short period of time so far but could be an indicator that gold’s safe haven appeal is returning.

In the U.S. much of the post-election focus among economists and the more mature analysts has been on the rapidly approaching ‘fiscal cliff’ whereby tax hikes in conjunction with spending cuts will hit on December 31st unless some deal can be reached in the U.S. house and senate that will alleviate this – and it seems that neither side is yet in the mood to compromise on their set positions. If no consensus to alleviate can be reached the U.S. would almost certainly move into recession during the first half of 2013. A U.S. recession, coupled with a Eurozone recession frightens investors, hence something of a move back into gold and it is noticeable that gold (and the other precious metals) has been virtually the only asset class to show some kind of appreciation in the past week – stock markets are down, commodities are down.

Fundamentals are suddenly looking stronger too.  GFMS’s Philip Klapwijk has just suggested that China’s gold appetite continues to rise despite the fall in growth there and has reiterated that the Asian Dragon will overtake India this year as the world’s largest consumer.  What is less certain is whether the Chinese gold imports are all being taken up by the general public, or whether some is actually being taken into non-reported reserves by a government which is nervous about the longer term future of its huge dollar-denominated forex holdings, but doesn’t want to rock the gold boat – yet.  Klapwijk puts Chinese gold take-up this year at 860 tonnes – about  one third of all new mined annual gold output – and still continuing to rise.  China is very much underpinning the global gold price.

Along with the rise in the gold price, the VIX – or fear – index is rising as well and if gold and the Vix are both rising this again is yet another indicator that what U.S. Global Investors chief Frank Holmes calls the fear trade is beginning to dominate gold price movement again. Recession realities are building and people are turning again to gold as their financial insurance policy.

About Lawrence (Lawrie) Williams

Lawrence (Lawrie) Williams has been involved with both the technical and the financial end of the mining sector for over 40 years, formerly CEO of top mining industry business publisher, Mining Journal Limited, he is Mineweb’s General Manager and Editorial Director.