Syria: another reason to sell

Even without the turmoil in the Middle East, investors are nervous.

The FTSE All-World Index has slid to a six-week low. The prospect of imminent Western military action against Syriaundermined confidence and burnished the appeal of gold, which hit a three-month high around $1,420 an ounce. Oil rose too, as did government bonds and the yen.

What the commentators said

Investors were "already nervous" about when the US Federal Reserve is likely to reduce the pace at which it is printing money, noted Alan Kohler on The emerging-market sell-off is also related to the eventual prospect of tighter money in the West. And it hardly helps that stockmarkets look stretched. According to Morgan Stanley's Gerald Minack, global stock markets have risen by almost 30% since last November, even though earnings per share have gone nowhere. Expanding US valuations were the primary cause.

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In the meantime, further ructions in Europe are on the cards, added Ian King in The Times, and another stand-off between the White House and Congress over the US debt ceiling is also looming. In September, historically, the stock-market is more likely to fall than rise on any given day. This particular September could prove "wretched".

However, market jitters may not be enough to keep gold on an upward trajectory in the next few months. Demand from consumers in emerging markets looks solid and selling by Western investors has eased. But higher real interest rates in the West, stoked by anticipation of tighter money, are a headwind for gold, notes Capital Economics. It points to a gradual normalisation of the world economy, bad news for an asset for bad times.

But don't give up on it for the long term. There is plenty of scope for a messy end to the great money-printing experimentand a surge in inflation if central banks resort to yet more liquidity injections. Gold remains a valuable insurance policy.

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