Bears raise Their Heads – Gold Continues to Run
Despite of the mixed signals being communicated to the gold market, gold was fixed at a new high of $1,522.00 at the end of Wednesday trading in London.
Gold struggled to move much above $1,500 after Wednesday’s high, but some experts, including Martin Murenbeeld, chief economist at Dundee Wealth Economics, believe that gold’s bearish factors are unlikely to hold in the long term.
Murenbeeld believes that gold’s upwards trend is likely to continue over the long term, because, as he puts it – the arguments for gold are simply more compelling that those against it – but he cautions that “the bear factors ” could come to dominate market trends occasionally.
In his latest Gold Monitor reports, Murenbeeld mentions policy exit strategies in China, India and the US as factors that will have a bearish effect on gold.
Despite the end of QE2 in the US not being an exit strategy per se, it is not one with a positive influence on the gold market. He points out that while Federal Reserve Chairman Ben Bernanke did admit that economic recovery was progressing at a lower-than-expected pace, he did not mention the possibility of QE3.
“What Bernanke didn’t say, because this is a touchy subject, is that the dollar should also decline. He knows that the greatest danger for the US economy is still disinflation and underperformance, just as the “economic bears” have argued,” Murenbeeld said.
Bearish argument number two focuses on the the greenback’s interaction with the euro: “Europe’s debt problems have tended to periodically favour the dollar over the euro. Gold doesn’t always decline when the dollar rises, because the dollar often rises on the back of European debt issues that are inherently positive for gold, but a firmer dollar is a negative headwind for the dollar price of gold nonetheless.”
According to Murenbeeld, the question that now remains to be answered is not whether Greece will default, but when.
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