Why are Gold Prices Falling in Spite of Troubled Economic Conditions?
Typically, when currencies are performing dismally, investors expect to see that gold is inching higher and higher on the price scale. However, in a turnaround of sorts, this is not really happening right now.
Safe Haven or Not?
Usually, investors perceive gold as a safe haven investment. This is the sentiment which sends them hurrying toward gold assets in various forms when economic decline seems imminent. Gold has always been considered a safe haven asset because of its ability to retain value through the worst economic fluctuations. In fact, when currencies are being devalued everywhere, it is gold that emerges the winner with steadily growing price.
This has been seen in recent times too as gold prices soared from strength to strength while the Euro and the dollar struggled to maintain positions in the markets. However, in this week, this situation seems to have undergone a change. Why? Is it because investors no longer consider gold a safe haven asset?
The Big Question about Economic Stimulus
Analysts believe that the disinclination to buy gold right now is not because investors do not have their previous confidence in the metal. The reasons for gold losing its sheen may be quite different, they feel. Most investors are now seriously questioning whether Europe is in a position to put up the financial support that is required to pull the various economies here out of the red.
With recession now a reality in Britain, the equation has shifted dramatically. Billions of Euros will be required to bail out the troubled Eurozone economies and now there is an enormous question about whether this bail out will be forthcoming at all and if so, from where.
Given the doubts about whether a cash stimulus will occur, investors are clearly playing safe by holding back from investing heavily in gold. After all, currency devaluation and gold price increase may be a given when monetary stimulus is given to the beleaguered economies. But when no stimulus is forthcoming, is it necessary to move into the precious metal without taking time to watch what happens?