Photo: covilha on Flickr
The price of gold has been nothing if not choppy this year.After an initial post-fiscal cliff rally, traders got cold feet and the metal plunged to a four-month low at the end of the week.
Then it quickly recovered.
Today gold is dropping again.
In morning trade on Friday the February contract gave up $25 to $1,653 an ounce – erasing all of Thursday’s gains.
Gold’s recovery from levels last seen October was ascribed to robust demand from China – imports of jewellery, bars and coins doubled month on month and on the Shanghai Gold Exchange volumes were through the roof.
Yesterday’s more than 1% jump was on the back of strong economic data out of China showing the country’s appetite for commodities are undiminished.
As for today’s slump?
Traders are again blaming China.
Bad inflation numbers saw gold being dumped because it could force Chinese authorities to start throttling the country’s stimulus program.
But hold on.
Gold bugs have been predicting (maybe secretly praying for) inflation in the world’s largest economies for the better part of a decade.
Inflation worries – or the more floral term, currency debasement – are exactly why gold is on 12-year winning streak.
It is supposed to be a hedge against inflation; a storer of wealth.
So Friday’s news about China should’ve seen investors piling into gold.
Yet the opposite happened.
It could be a sign that gold’s status as a safe haven asset is in trouble.
And a further indication that the ability of central banks, including the Fed, to move the market is greatly diminished.