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Gold : haven no more?

Wednesday, October 05, 2011 - 02:34

Oct. 6 - Gold's dramatic drop chips away at investor confidence over its safe haven status, but some analysts say the precious metal is merely taking a breather. Cathy Yang reports.

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A $120 drop in the price of gold - casting a dark spell on investors who thought they'd found the safest harbour in this global volatility. The precious yellow metal tumbling to a two-month low on Monday - sending it ever so further away from the lifetime high it reached in September - of around a $1,920 an ounce. What was perceived to be safe - was not any more. JPMorgan's Adrian Mowat says commodities are - in his words - the "last-man standing" - among all asset classes. SOUNDBITE (English) JPMORGAN'S CHIEF ASIAN EMERGING MARKETS STRATEGIST ADRIAN MOWAT SAYING: "I think the final straw for the commodities bulls is to pay attention to what the central bank is doing in China - they're fighting inflation. The only way you reduce inflation is you reduce demand in the economy. So it's about to see a big reality check - the commodities complex." SOUNDBITE (English) REUTERS CORRESPONDENT CATHY YANG SAYING: "So how did gold lose all its glitter? Well, we do know that the uncertainties about global economic growth - stemming from the euro zone debt crisis - drove gold prices to record highs since July. But as declines in other markets gathered pace - and gold prices failed to break past recent highs - investors were forced to sell bullion for cash to cover losses." Commodity Broking Services' Jonathan Barratt. SOUNDBITE (English) COMMODITY BROKING SERVICES' MANAGING DIRECTOR JONATHAN BARRATT SAYING: "We've seen plenty of margin calls with equity prices under a lot of pressure, we've seen the US dollar exceptionally strong and we've seen people take profits on the gold trade which they've had for such a long time. So if anything we've seen all the weak longs out of the market." It's what investors had exactly gone through when Lehman Brothers collapsed in 2008. But it didn't take long then before investors saw a turnaround in the financial markets, and with that came a recovery in demand for gold. That's why Barratt is still very optimistic about gold staging a big comeback at some point. That's why he's recommending buy gold on dips. SOUNDBITE (English) COMMODITY BROKING SERVICES' MANAGING DIRECTOR JONATHAN BARRATT SAYING: "When you did see the September 2008, when Lehman Brothers actually collapsed, we did see a 200 dollar drop on gold and since November or since October, we saw gold rally from there. So if you look at the two of them, it's not dissimilar when you look at the Greek sovereign debt and the problems we got in Lehman's where the market is clearing the decks for cash." And then there's that supply and demand dynamic working in favour of gold in the region. Soon after the dramatic drop in gold prices last Monday - premiums for gold bars in markets such as Hong Kong, Singapore and India jumped to their highest since at least February. The drop in gold spurring purchases from jewelers and speculators - assuring tight supply - and price support across Asia. The situation today mirrors closely what took global financial markets down in 2008 - in that there's been fear of a global recession. But the 2008 financial crisis itself tells us - history may very repeat itself - and that it would only be a matter of time before gold starts shattering new highs in this risk-off environment. Cathy Yang, Reuters.

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Gold : haven no more?

Wednesday, October 05, 2011 - 02:34