After some losses last week, today gold continued its overall previous rise. The precious metal still has attractions for those who fear for the economic health of the Eurozone amongst others.
The Spanish takeover of the savings bank CajaSur on Saturday after its failed merger with another smaller Spanish lender Unicaja, has reignited worries about the stability of the Eurozone. CajaSur will now have access to the Spanish Fund for Ordered Bank Restructuring (FROB), which was formed in 2009 to ward off possible systemic risk. Banks voluntarily drawing from the fund have 5 years to repay it. The Bank of Spain has appointed a provisional administrator to run CajaSur as Spain’s worst recession for some 60 years bites.
Some commentators see last week’s gold price fall as a mere correction and that prices will continue to rise now as investors look suspiciously at the Eurozone.
One of the stranger parts of this is that the usual inverse relationship between gold and the dollar has not been evident. It seems that peoples’ aversion to risk has led them to put money not only into gold but also into the dollar. This makes many think that there is now a flight from European risk.
Gold is often seen as the device for hedging risk, especially currency and inflations risks. In these cases there is rising demand for the hard bullion itself as provided by BullionVault and not in paper based fiat currencies. At the time of writing BullionVault is still giving away a small amount of gold and silver for those starting new accounts.
When looking at the graph (courtesy of kitco.com) one can see the inexorable rise of gold over the last five years. With nervousness in the European economy still evident this could keep going up for some time to come.
According to Bloomberg today the demand for gold now outstrips the rate of production. This has an obvious effect on the price.