Gold, Silver and the Fear Factor

Gold and silver continue to confound the naysayers, moving higher along with the U.S. dollar as investors flock to so-called safe haven investments.

Gold Bars
Gold Bars

Taking the pulse of the market, the overriding theme is fear of the crisis in Europe—here is some of the commentary:

Citing concerns about sovereign risk in Europe and the stand-off in Korea, Rohit Savant, Sr. Commodity Analyst at CPM Group says investors are buying "gold, silver, platinum in that order". And while there might be some profit taking into a rally, he says investors see sell-offs as buying opportunities.

Ashraf Laidi, CMC Markets Chief Market Strategist says, "...surging Eurozone bond spreads and a broadening selloff in the single currency (euro)" are helping to feed investor demand for gold. "This is a repeat of the Feb-June period when the yellow metal broke to new highs due to uncertainty with Greece and Spain."

And Brian Hicks, Co-Portfolio Manager of U.S. Global Investors Global Resource Fund agrees. Despite the recent decline in the Euro he says investors are concerned there could be further room to fall and are using gold as a hedge. "We could get back to the $1,400 level for year-end" and he says, if it gets there investors could see a quick move up to $1,500 per ounche.

Earlier this week, UBS analyst Edel Tully cut her one-month gold forecast from $1,425 to $1,325. But, the UBS three-month gold forecast is unchanged at $1,400

In her note she writes, "Ordinarily, the expectation of a stronger dollar would be a strong indicator of a weaker gold price next year. But in Q2 2009, gold showed how it can divorce itself relatively quickly from this negative correlation. We expect the continuing sovereign crisis in Europe to be a positive driver of gold in 2011."

What could stop the rally in precious metals? Higher interest rates, better investment opportunities elsewhere and world peace.


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