Gold's Role Reversal

Source:

...Another inflationary development over the weekend saw several OPEC members calling for massive production cuts to support the price of oil - another positive for gold. All of this has led to a massive rally in gold...

Gold has staged a spectacular rally over the past few days and there are a few important things to note:

The precious metal bounced after dipping below $700. On Thursday gold strengthened alongside the dollar. Friday then saw a massive jump with follow through buying today.

Gold's role has reversed from safehaven focus to dollar focus - it has been rallying along with the market.

Role Reversal

As the crisis unfolded, it was common to see gold strengthening alongside weakening equities - now we are seeing the opposite. Why? Well simply because we are not rallying on fundamentals but rather the prospect of government bailouts. In other words, the markets are only being supported through inflation. Another inflationary development over the weekend saw several OPEC members calling for massive production cuts to support the price of oil - another positive for gold. All of this has led to a massive rally in gold.

Gold Shares

Gold mining shares have significantly underperformed gold year-to-date. In my opinion this is largely a reflection of the massive run-up in energy prices - a major input in the mining process. With the gold/oil ratio back to a justifiable ratio, gold shares may have a lot of room to run here, should gold continue up...

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