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Greed Down, Fear Up

By Adrian Ash/ March 2009


WITH Indian jewellery buyers entirely out of the picture during February 2009, it’s clearly investor stress that’s driving the bid for gold this year so far.
Gold imports to India sank to zero last month, says the Bombay Bullion Association. But lacking this key source of physical demand – up to one ounce in every five sold worldwide! – the gold price still surged to new record highs against all non-Dollar currencies bar the Yen, including the Rupee.
More intriguing still as the Dollar price re-touched $1,000 an ounce for US investors, the leveraged impact of gold futures and options – those rocket-fuelled derivatives that helped push gold three times higher between 2002 and 2008 – also remained weak.
Hedge funds have come back to the gold market, of course. But not in anything like the numbers, nor with the cock-surety they used to. And that’s a big change from the greed-driven market of the previous half-decade.
Together with Euros and crude oil, gold used to offer a strong “Dollar down” play, especially for hedge funds trading derivatives with cheap loans from investment banks.
Now gold’s stepped aside, particularly over the last 7 weeks and particularly vs. the Euro. It gains as the Euro falls and vice versa, and it also mirrors the equity markets as well. It was easing financial tensions (whether perceived or real) that knocked gold prices lower towards the end of February 2009…just as stocks capped their 10-day rout.
Now the rout’s back on, however – and whatever impact the lack of physical jewellery demand might come to have on long-term gold market dynamics, the bid from anxious Western investors can’t be ignored.

Adrian’s Previous Blogs:
Jan 2009:    Investors vs. Consumers, 2009
Dec 2008:    Something Odd Stirs in Mayfair