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09 May 2012

Golden Disappointment Breeds Golden Opportunity

Falling Gold Prices Ignites Interest From Physical Retail Buyers

Gold investors have had a disappointing week. And it all looked so promising. On the face of things, the election of an anti-austerity socialist president in France, and political uncertainty in Greece should have made for climbing Gold prices. That's how it is supposed to work.

However, to the dismay of Gold bugs, the stubborn tedium of Gold and Silver prices over the past month has been broken by a sharp move lower. The reason for this will be all too apparent to many seasoned Gold watchers. However none of the price action in precious metals this week should have come as a surprise to Gold investors, as we have seen the exact same pattern of behavior before.

Throughout the European debt crisis, the Euro has held up remarkably well. It seems that now confidence in the single currency may finally beginning to drain. Todays moves by Spain to "Clean Up" the property and construction sector crashes are unlikely to restore much faith. Incidentally, yields on Spanish sovereign debt rose above 6% today.

But as we, and many others, have pointed out before, one currencies weakness is another currencies strength. One of the main beneficiary's of the Euros woes has been the US Dollar. Gold traditionally is very strongly negatively correlated to the Greenback. With the USD seeing significant strength, it is a tribute to Golds own strength that in the face of this, it has held up as well as it has.

The French election result was very much expected, and the chaotic political coalition attempts after the result of the Greek election were even more foreseeable. It seems that the Gold market may well have priced in these events that some Gold fans were depending on to kick prices up out of their well worn channel. It may be that the precious metal markets have even priced in a Greek exit from the Euro.

What the market has not priced in is the enacting of QE3. Precious metal markets are still disappointed with the non arrival of QE3 last year. But if dollar strength continues and Americas exports continue to suffer, the temptation for the Fed to enact QE3 may be too much. This will put gold back into an upward trajectory.

In the meantime, Golds dip has produced some of the most interesting traffic to that we have seen for some months, with a 20% jump in traffic and click through rates, as physical bullion coin and bar buyers have come looking for a bargain.

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