Ebullient Gold Shrugs off Rising Risk Appetite

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"Investors should be wary of calling a top to gold's price rally: It seems like all news is good news for gold."

Investors should be wary of calling a top to gold's price rally, as the ease with which it has scaled fresh peaks even in the face of recovering risk appetite shows the breadth of underlying support for the metal.

Gold's latest bull run, which has seen prices double since mid-2007, has been dismissed by some commentators as the ultimate bubble, a knee-jerk reaction to the panic that gripped financial markets after the collapse of Lehman Brothers in 2008.

Prices will come down again at some point, analysts say, most likely once the Federal Reserve makes serious moves to tighten monetary policy. But for now it seems like all news is good news for gold.

"Even though equity markets are looking very perky, for gold you still have those big macro-financial issues that the markets are grappling with," said Credit Suisse analyst Tom Kendall.

"In the Far East, particularly in China, inflation is still at the forefront of investor concerns. The U.S. dollar is there, particularly for North American investors. And in Europe, this issue of Greek debt is still playing into investors' behavior."

The extreme risk aversion that battered cyclical assets in the wake of the credit crunch has since abated, allowing world stocks to recover. Yet gold continues to climb.

Long-term inflation and further dollar weakness are both on the cards.

The dollar has struggled to benefit from the fledgling U.S. economic recovery that has lifted stocks and cyclical commodities this year. These assets are helped by doubts that major tightening in U.S. monetary policy is imminent.

"The equity and commodity markets are still very much convinced that. . .the Fed will be there to support growth going forward, and that support is likely to come from ultra accommodative monetary policy," said Deutsche Bank Analyst Daniel Brebner.

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