DMR–Gold sideways but stable, ignores past influences


Gold at $1223 is sideways for the third day running and that might be an achievement in itself given what is going on around it.  The yuan at a nine-week low is experiencing a renewed bout of weakness.  The euro is under pressure as the EU edges toward a budget confrontation with both Italy and Spain.  Last but not least, rising rates continue to hound the U.S. bond market with 10-year yields once again pushing higher somewhat aggressively.

Such readings in the past usually coincided with strength in the dollar weakness in the gold market.  Today, the dollar is up and gold is stable – even showing some minor strength at short intervals. At one point in European trading overnight it pushed once more toward the $1230 barrier before falling back.  All of this rekindles the safe-haven argument for gold and offers a hint that gold might be preparing for a break with the immediate past.

Last, we bring to your attention a nearly 3% drop in the Shanghai stock market overnight and remind that a similar drop a little over a week preceded the more than 1000 drop in the Dow Jones Industrial Average.  Like it or not, the fate of the two stock markets might be more mingled than some would be willing to admit.

Quote of the Day
“The great Russian opera singer, Feodor Chaliapin, lost his entire fortune–then worth more than a million pounds–in the Russian revolution.  This disaster seared him.  He left Russia after the Revolution and went to live in France where in 1931 he bought gold bars and put them in a safe in his cellar in Paris. He was interviewed by the British Sunday Express newspaper on the 5th of May 1935, when he said, ‘People in Britain think governments cannot collapse.  They think banknotes are money; banks are impregnable. But I have had everything I made in 25 years stripped from me.  I was reduced to singing for tea in which there was sawdust, and bread in which there was wood.  With my bar of gold and a pen knife I shall never go hungry.’” — Anecdote told by Haruko Fukuda, World Gold Council chair, in 2000 to the Business Club Zurich

Chart of the Day

Chart note: This chart demonstrates gold’s strong performance as a portfolio holding over a long period of time. It depicts the year-end price of gold since 1970. It dispels the notion that gold is somehow volatile or unpredictable and as a result unreliable as a long-term portfolio safe haven. To the contrary, it shows gold living up to its reputation as precisely the opposite – stable in the face of rapidly changing economic circumstances, predictable in that it reacts directly to those circumstances and reliable in that has performed as advertised over an extended period of time – in fact, as a hedge against the concurrent and continuous depreciation in the value of the US dollar since 1971.

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