Fear has long been the main driver behind trading gold, but has this changed
Gold had a quiet 2014, with only 20% between its high and low point, as oppposed to some of the rollercoaster years before that. But traders are always keeping an eye out for any surprises. If any of the following things happens in 2015, the days of daily percentage hikes and drops might return.
Is there a change in gold’s status as a safe haven? Whenever something spooked traders in recent years, they swam to the traditional and trusted islands of stability – gold and the Swiss franc. Although the latter has kept its status, the former has lost a bit of its gloss.
Gold is now thought to be decoupled from rising indexes, as evidenced by the continued rise in the S&P and Dow Jones in the U.S. which hasn’t prompted the usual outflow of more “conservative” money locked in gold assets or derivatives. What remains to be seen is if there is indeed a crash in the stock markets, will that cause another influx of “money running for cover” in gold.
Last year’s periods of turmoil and sharp drops didn’t give any indication that they will, but this can of course change, especially if the other factors at play receive more attention and start sinking in. The rising U.S. Dollar and low interest rates are mong them and should act as breaks on any upturn for the price of gold. But EUR/USD at or around 1.19, which we hit several days ago, has previously sprung the ECB into action, so plans and guidelines are probably being changed as we speak.
Going back to fear, the main concerrns are currently coming from Greece exiting the eurozone (elections there are due on the 25th of January, with the far left in pole position, threatening to even leave the EU) and the geopolitical conflict between Europe and Russia. Both seem unlikely to flare up and cause an economic crisis, but if things start to get out of hand, some familiar behaviours might resurface and gold could come back in vogue.
Oil’s drop is also something that gold traders are keeping an eye on, as lower prices will mean extra free resources and an opportunity to diversify savings into gold, or boost existing positions or real ownership. No fear here, one of the rare cases of optimism and good intentions driving the price.
Speaking of good intentions (and vows and cakes) we can’t go without mentioning the two largest markets for physical gold, China and India, whose increasing middle classes use gold in relatively large quantities (compared to the West) for weddings and other social events. With their rising number and spending power, they have become the main factor, alongside industrial and high-tech production (computers, processors and the satellite industry are among the largest buyers there).
If things remain relatively quiet, we could be in for another year of blunt moves and tight ranges. However any changes in currency and geopolitical circumstances will change the game for gold. 2015 might turn out to be a defining year for indexes and stocks and for what is widely accepted as money printing by central banks, but it might also show us if gold is still the place to be when the boat hits the rocks.