Sunday, March 4, 2012

Gold Takes a Hit and Other Dynamics

On Wednesday, when Federal Reserve Chairman Bernanke’s  testimony  to the U.S. Congress suggested the potential lack of additional quantitative easing (printing money), gold swiftly dropped – down about 5% for the day. For many investors, investing in gold is driven by hedging against global economic stability, inflation fears and general speculative activity. Interest also increased when positions were taken by investment managers such as John Paulson (who bet on the sub-prime mortgage market collapse) and Greenlight Capital’s  David Einhorn who said “I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible.”   


Einhorn’s comments may provide the best understanding about gold investing.  However, the erratic performance of gold in recent months, along with its price decline last week, suggest that the conviction of gold investors may be in decline. In addition, the lack of additional quantitative easing could drive speculators out of the equity and selected commodity markets resulting in a short-term market pullback.

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