Don't Cry For Me Bullion, the truth is, I never left you. I kept my promise, you keep your distance!
Disappointing gold loses some friends
Reuters
July 26 2002 at 06:51AM
London - The link between the gold price and stock market movements had blurred in this week's dramatic swings in global equities, raising doubts over gold's claim to be a safe haven asset, analysts said yesterday.
Gold often moves in the opposite direction to stock prices, rallying if equities slump.
Conversely, it tends to come under pressure if equity markets or the dollar are on an upward trend as investors' need for asset diversification diminishes. But this relationship has frayed.
"The textbook works very well until it doesn't," said Peter Hillyard, the head of metals sales at ANZ Investment Bank.
Gold hit a more than two-and-a-half-year high last month. But Tuesday's slump in Wall Street stocks to new five-year lows was accompanied by the biggest one-day
selloff in gold since 1997.
There was no rush into gold as a safer bet during the stock market turmoil.
On Wednesday, when the Dow posted its biggest gains since 1987, gold briefly recovered rather than wilting under the pressure of funds moving back into equities.
Gold was fixed at $310.25 an ounce in London yesterday morning, its lowest level since May 16, despite a rally in European stock markets.
In explanation, analysts said that some institutions needed to raise cash to meet margin calls on falling stock markets. This led them to sell their positions in gold and gold equities.
If gold cannot be linked to stock movements, then is it a viable protection in times of trouble? Some analysts think not.
Howard Patten, a metals analyst at Barclays Capital, said: "Gold remains a commodity in search of an investment role to replace its defunct monetary purpose. Despite the mammoth collapse of the world's major equity markets, bullion's ability to attract disaffected funds has been minimal."
He believed about $507 million had poured into the US Comex gold futures exchange this month. That is dwarfed by an estimated $1.8 trillion loss in the value of the Dow and the Standard & Poor's 500 stocks.
"Viewing the gold market in context of its overall size casts doubt on the claims that it acts - or could even act - as an efficient safe haven for global funds," said Patten.
Lawrence Eagles at GNI said: "Gold has lost a few friends because of its slump in the wake of recent stock losses. Few traders view it as a good hedge against a slide in share values." |
