In May – Gold was Poised for Worst Performance Since 1982

June 6, 2012 - by buygold.co.uk · Filed Under Gold Prices Leave a Comment

Thursday, gold went over $1,565 per ounce as Q1 growth in the US was soft. Combined with the fact that the jobless claims figure for the week was high, the US dollar was pressured. With the euro dropping throughout May, the precious metal was set to perform its worst in thirty years.

Most investors opted for the dollar in May with issues brewing in Italy, Greece and Spain. Italy experienced a rise in borrowing costs rose, Spain saw its banking system become unstable, and Greece was plagued by concerns over whether it will remain in the euro zone after elections.

Gold almost lost appeal as alternative asset

The precious metal, which is very sensitive to any gain in the US currency, was caught in the broader sell-off in the market. This has the potential to damage its appeal to investors as an alternative asset. Despite this, August delivery gold futures was $1,568.70 and spot gold was $1,567.56 after a 0.4% gain.

Gold saw a downward swing of close to 6% in May, which was the biggest loss it has experience since 1982, when it dropped to nearly 10%. Based on its current trend, the precious metal will most likely continue its 4th consecutive monthly drop since 2000 January.

High risk aversion a key factor in gold losing luster

Daniel Brieseman, Commerzbank’s analyst stated that like other equities and commodities, gold faced a steep drop as a result of high risk aversion. However, ideally, is should be the situation in which gold prices increase. Brieseman believes that the firm position that the dollar holds is one of the factors keeping the precious metal in its place. Once the situation reverses – which is likely to happen any time – the price of gold will increase significantly. Instead of serving as a safe haven, gold traded like other commodities – a deviation from what it did for most of last year.

Thursday, the euro rose against the dollar amidst expectations that Ireland will vote in favor of the fiscal pact that Europe was planning to implement. This helped ease some of the pressure on gold. Despite the fact that many are expecting a new round of monetary easing in the US, not many have confidence in gold.

Be Sociable, Share!