Gold pares losses, but can we ever consider it a ‘safe haven’ again? – Phoebe Sedgman (Bloomberg News/National Post – April 16, 2013)

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Safe havens are safe. Safe havens are stable; gold is not safe and certainly it is not stable

Gold rebounded as some investors deemed a 14% plunge over two days to be excessive and an Asian central banker said that policy makers may take the opportunity to buy. Silver, platinum and palladium advanced.

Gold for immediate delivery traded 2.1% higher at US$1,376.20 an ounce at 2:53 p.m. in Singapore after dropping 1.9% to US$1,321.95, the lowest level since January 2011. Prices fell 9.1% Monday, the most since 1983, and have lost 28% since reaching a record in September 2011.

Bullion fell in 2013 after twelve annual gains that raised the price of bullion more than sixfold as the Standard & Poor’s 500 Index climbed 8%. Gold dropped this year as data showed the U.S. recovery was gaining momentum and some Federal Reserve policy makers signalled that stimulus may be scaled back, curbing haven demand. Societe Generale SA said that the slump was overdone as quantitative easing, or QE, will continue.

“Everything isn’t looking that rosy, so gold should hold up,” said David Poh, Singapore-based regional head of portfolio-management solutions at Societe Generale Private Banking. “This tumbling over the past few days is overdone. We think a good time to accumulate is at the US$1,300 level.”

The decline in prices would give central banks an opportunity to buy, Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said in an interview on Bloomberg Television today. The Bank of Korea said that bullion’s drop isn’t a big concern as the bank’s holdings are part of a long-term strategy for foreign-exchange reserves.

Higher Margins

Bullion for June delivery was 1% higher at US$1,374.70 an ounce on the Comex in New York after losing as much as 2.9% to US$1,321.50. CME Group Inc. will increase margin requirements on gold trading, raising the minimum cash deposit for futures 19% to US$7,040 per 100-ounce contract at the close of trading today, Chicago-based CME said in a statement.

Spot silver rallied 2.4% to US$23.305 an ounce after losing 3% to US$22.07, the lowest level since October 2010. Platinum climbed 2.8% to US$1,442 an ounce, rebounding from US$1,375.50, the cheapest price since December 2011. Palladium dropped as much as 1% to US$647.25 an ounce, the lowest level since November, and then gained 3.8% to US$678.

Gold’s drop was spurred as some investors sold the metal to raise cash to cover other positions, according to Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. Data Monday that showed that the economy in China, the largest gold producer, expanded less than economists expected in the first quarter prompted a 2.3% retreat in the Standard & Poor’s GSCI Spot Index of 24 raw materials.

US$1,000 Target

“Gold is no longer a safe-haven asset,” Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said on Bloomberg Television’s “First Up” with Susan Li. “We could actually maybe see a long-term trend of gold trending towards US$1,000 in order for it to better converge with other commodity prices.”

For the rest of this column, click here: http://business.financialpost.com/2013/04/16/gold-pares-losses-but-say-so-long-to-your-safe-haven/

 

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