Is Gold Not a Safe Haven for Investors Anymore?

For a long time now, investing in gold was the wisest thing to do and gold investments were considered the best for hedging other investment risks. But now, with gold reacting like any other not-so-precious metal to the economic conditions of the European countries and the world as a whole, this thought process may not seem valid anymore. Gold, which is usually in inverse relation with declining markets, had gone down by almost $300 in less than one month, soon after it reached its record high of $1920 in September 2011.

What happened to all the glitter?

Gold seemed to be the only hope for investors when all their other investments failed. But that was before it took on a declining trend, more so in correlation with the declining economy and the persistent debt-woes in the Europe. Many investors had invested in gold as it was considered as a lifesaver, and the increasing gold prices added fuel to that thought. Also, when gold reached a peak of close to $2000, it had attracted a number of hopeful speculative investors. At the same time, many doubtful investors, who had profited with gold investments earlier, decided to opt out.

The sudden and steep fall in the gold prices recently, with the debt woes still persistent, have proved these investors right. As of now, the chances of gold returning close to a glorious $2000 are dim, and the dollar seems to be the only safe haven for investors again.

Gold margin

Another factor that has affected the price of gold is the increase in the gold margin requirements. In August, the CME group had raised the margin trading requirements or gold by a huge 27%, stating volatility as the reason, and may do so again in the future. This has reduced the appeal gold earlier had for speculators, adding to the fading image of gold as a safe-haven asset.

Gold’s power seems to have melted along with the credit ratings of Spain and Italy, but how the yellow metal is going to behave or where it stands in the future can be heavily dependant on how and when the economy of the euro zone stabilizes.