Gold Wipes $560 Billion From Central Banks as Equities Rally
There is a major shift occurring in the way that gold is perceived as an investment, and it is causing the price of the metal to plummet. After reaching a record high in September 2011, it has now reached a two year low. Money is moving from the standard safe-haven metal to equity markets, indicating further confidence in the overall economy and possibly reinforcing the belief that the price of gold is a bubble on the verge of collapse.
I think the price of gold is something very important to watch given the aggressive macroeconomic policies of many countries. It is expected that the value of currencies would drop, and there are even talks of currency wars, but the price of gold continues to drop in spite of that. I think that means either investors are not concerned with the inflation risks anymore or that the bull market created by economic stimulus is just too attractive to have money sitting on an investment primarily used just to hedge against inflation. However, there is also the underlying factor of fear that the gold bubble could collapse at any moment, and I wonder what the effect of a dramatic drop in gold could have on the banks’ measurements of assets given that so much of it is in gold at the moment. Overall though, I understand the shift at it’s most basic level, in that the movement of funds to equities is a positive indicator of growth, especially considering that gold contributes little to creating any growth at all.