There was some interesting activity in the price of gold on Friday, when the precious metal moved above $900 an ounce for the first time since October.
You can see an intraday chart of Friday’s moves below (click to enlarge) or read this blow by blow account by Dresdner (emphasis ours).
However, at the start of the trading day, nothing pointed to this rally. Gold was a bit weaker in early Asian trading and pared the loss. But gold edged lower again and reached the low of the day in early European trading at 852$/oz. After the opening of equity trading at European exchanges, gold made a first surge to 880$/oz. Investors sold stocks and also government bonds and switched into gold. During this phase, crude oil traded lower and the euro dropped to 1.276 versus the US dollar after starting the day above 1.30. Thus, gold defied the two strongest fundamental drivers. Later in the afternoon, gold made another strong move to the upside and rose to 903$/oz. This rise was supported by crude oil, which gained 13.5% from the low of the day after consultant Petrologistics estimated that OPEC would curb supplies by 5.4% to 26.15mbpd. Also the euro pared the loss in the late afternoon. Gold ended the day marginally below the 900$/oz mark.
Today gold is hovering around $905 an ounce, based on “safe-haven demand” from investors and strong momentum trading.
Though the correlation with the dollar appears to have once again returned as of Monday afternoon (again, see chart above), Dresdner is still predicting a bull-run for the metal:
However, fundamentals appear to matter no longer for gold. Fund managers switch out of equities and government bonds into gold as they fear a deeper and prolonged global recession. But recessions are usually not the best time to buy gold as inflation is not a problem and price indices are under pressure. Thus, the next irrational exuberance appears to be underway.
Gold bugs rejoice.
Related links:
Gold breaks $900 barrier – FT
Gold (sub)standard – FT Alphaville
As gone as gold – FT Alphaville