2012-11-10

Investors have been driven out of many risky asset

The gold price rose for the fifth consecutive session on Friday despite a further advance in the U.S. dollar.  The spot price of gold climbed by as much as $6.09, or 0.4%, to $1,739.34 per ounce in morning trading while the U.S. Dollar Index added 0.4% to 81.087.  In doing so, the gold price reached a three-week high while the dollar hit its best level since late August.

The recent strength in both gold prices and the U.S. dollar has coincided with a substantial risk-off phase in the broader financial markets.  Following Barack Obama’s successful re-election campaign, the focus in the U.S. has shifted toward the looming fiscal cliff.  When coupled with ongoing concerns over the European sovereign debt crisis, investors have been driven out of many risky asset classes such as stocks and commodities and into safe havens such as the yellow metal and greenback.
Standard Bank noted in a recent report to clients that “In spite of dollar strength, the (gold) market appears to continue to take comfort from Obama’s re-election and the implied support this gives to continued monetary accommodation from the Fed.”

Gold prices have also received a boost of late from growing demand in China, according to analysts at Commerzbank.  “Chinese demand for gold is set to grow by 1% this year [to a record] 860 tons on the back of increased jewelry demand and growing investment demand,” the firm stated, citing data from Thomson Reuters GFMS – the world’s largest metals consultancy firm.

Commerzbank also pointed to comments yesterday from European Central Bank (ECB) President Mario Draghi – who contended yesterday at the ECB’s monthly monetary policy meeting that its pledge to purchase sovereign debt of struggling euro zone nations has helped to stabilize the region – as helping lift the price of gold.  Draghi’s remarks helped raise the “expansionary degree of monetary policy,” the firm contended, which is “likely to spark concerns about inflation and keep demand for gold” strong.

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