So much for gold shining in bad times, many investors must be thinking. Last week gold slumped by 9% to a five-month low under $1,600 an ounce.
Last week's sharp sell off in risky assets instead boosted the US dollar, which, measured against its main trading partners' currencies, is at an 11-month high. In a panic, investors ditch assets for cash, and the world's reserve currency is the most liquid major currency.
Europe's failure to provide a long-term solution to its debt crisis prompted euro selling and dollar buying, while the European banking system is also behind the trend.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
"Financial markets in Europe have completely seized up," says FxPro.com, "making it exceedingly difficult for banks and companies to obtain funding they have been forced to get funding in other currencies, principally the dollar."
There has been talk of banks selling or leasing gold to raise money, while Jack Farchy in the FT points to hedge funds and other investors aiming to preserve profits "or minimise losses" as an additional factor. During a dash for cash, gold, as one of the world's most liquid assets, is vulnerable to sharp slides.
But as Tom Kendall of Credit Suisse points out, this is what happened to gold when Lehman collapsed amid "similar funding stresses, a squeeze on liquidity, and heightened counterparty risk". It recovered its footing and reached new peaks, and this time, too, the long-term uptrend looks intact.
Emerging-market central banks are still buying, interest rates remain negative, and more money printing by Western central banks is on the cards. Barclays Capital sees the yellow metal averaging $2,000 next year.
-
Aurora Innovation is running on empty – is it overvalued?Aurora Innovation, a maker of self-driving trucks, may have promised far more than it can deliver
-
Is it time to ride the recovery in emerging markets?Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
This fund will benefit from rising interest ratesFinancial stocks have underperformed but the sector might be in for an upswing, says Max King. Buy this trust to benefit.
-
UK banking stocks: what’s the latest this results season, and are they worth a look?All five major UK banks released their annual results in February, reporting profit increases. But the sector has long been unloved by investors. Are UK banking stocks hidden gems, or better avoided?
-
Royal Mint: Gold boom likely as investors turn to physical goldNews Recent banking scares have encouraged investors to turn to gold to protect their portfolios from volatility. Should you be looking to buy more gold?
-
What’s happened to Credit Suisse stock?News Credit Suisse stock has slumped on rumours that the bank is in trouble. Is there any truth in this speculation?
-
S4 Capital – a company that still has much to proveTips Audit delays set shares tumbling at advertising agency S4 Capital. It needs to show it can turn growth into profits, says Bruce Packard.
-
When to buy shares in NatWest, Britain's worst bankTips Rising interest rates should lift profits for the banking sector if inflation doesn’t get out of control, says Bruce Packard.
-
How UK banks went from Big Bang to universal failureCover Story The 1986 deregulation shook up the banks, but the all-in-one model that it created is bad for customers and investors. Specialists do a better job – as the real fintech winners are showing, says Bruce Packard
-
Evergrande: Chinese property giant spooks global marketsNews Global markets fell this week as investors worried about the fate of Evergrande, China’s most indebted property developer, which is teetering on the brink of default.
