The reason why gold hasn’t rallied as stocks sold off


Gold was down marginally today losing $2.50 to finish at $1332.75.  It finished a harrowing week down $16.75 after all was said and done – not bad considering the carnage found elsewhere in financial markets. Silver was down marginally today as well losing 6¢ to finish at $16.39. It was the second straight down week for both metals.

Under the headline There’s a good reason why gold hasn’t rallied as stocks sold off, Bloomberg addresses a question on many investors’ minds.  “One possible reason,” it reports, “is that ETF investors might be selling gold to offset their stock-market losses, according to a note by Commerzbank AG analysts including Eugen Weinberg. It’s not the first time gold has struggled during the acute phase of a sell-off – the metal also fell during the 2008 crash, probably as investors scurried to cover margin calls. Yet bullion’s haven appeal is evident in its out-performance on a relative basis, turning higher in later phases of a downturn while all else continues to slide.”

Those ETF investors are big-stake players – institutions and funds who took positions in the gold market in the event that something like what has happened in the stock market over the past two weeks actually took place.  In other words, they bought gold as a hedge.  Now they are quietly using the metal, as intended, to cover losses in other areas of their portfolios – another example of gold fulfilling its advertised role as a safe haven.

Quote of the Day
“There is no means of avoiding the final collapse of a boom brought about by [circulation-] credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises

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