Is Gold a Safe Investment?

For several months, gold has continued to climb, and accelerating with every bad announcement. The latter has played its role of refuge in these difficult times. However, the last weeks have been marked by a fall in the price, we will see why and what prospects are to be expected for the next few months.

A bubble bursting

Beyond a simple drop, it is a collapse that has been found, in just one month, the price went from $ 1,900 an ounce (a historical high) to less than $ 1,550 ( shade in session). This brutal correction is explained by two reasons. We easily noticed that the rise preceding the break-up, was almost linear, almost no phase of decline. No doubt, it was not only the investors anxious to preserve their capital in this movement, a large part of the actors was of course speculators of all kinds. Difficult not to yield to such ease, the desperate situation in Europe or the loss of triple-A of the United States, are a blessing for speculators.

Next, to the bursting of the speculative bubble, another reason explains this fall. Investors, not speculators, who had chosen gold as a safe haven, were forced to partially liquidate their positions. In effect, they need cash to cover losses on other assets or repayments. As a result, they may also be judged speculators in the sense that, not looking for gold only as a guarantee of value but also as a hope to get out of the situation with the acceleration. Reacting like speculators, it goes without saying that in wanting to obtain the highest value to cover their additional losses, they wished to cut positions at the highest.

In fact, in this context of doubt, what has happened is that at the slightest hesitation, the courts have totally tumbled. This seems quite logical in the sense that speculators were waiting for this to come out, this created a phase of hesitation over a few weeks. In normal times, the trend would have to resume, but it is nothing. Seeing the market consolidate, investors in turn (after a failed test of a higher) liquidated their positions, which had the effect noted.

Low competition in front

On the safe haven side, we can distinguish three types: metals (gold in particular), currencies and national bonds (claims of nations). It is clear that today, bonds are no longer a safe haven, especially when we think of the debt crisis in Europe. Indeed, by holding an amount in obligation, if the country fails, we lose everything. Then, in terms of currencies, the problem is that the prices are too volatile in time. In addition, monetary operations by central banks can hinder a long-term perspective (money can be duplicated at will). Faced with this, gold is a safe bet, no risk of default and supply is stable (we cannot replicate gold contrary to the currencies).

In addition, the stock of natural gold tends to decrease over time, making it a safe bet in the long run. However, there is still a lot of gold in the basement, but high-density sources are much rarer. It will, therefore, be necessary to treat low-density soils, and thus to increase the production costs, thus the price of the yellow metal.

Even though the price of gold has been up and down in recent times, it seems that in the long run, the trend is very likely to be bullish. However, the very powerful correction movement could continue. From $ 1500 an ounce, the yellow metal could become an interesting investment.

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