Anonymous reports place gold bullion at a New York phone booth three days ago, hurriedly changing into an excessively tight red and blue lycra outfit. Something about a cape too.
Sometime between then and now, the headline gold bullion raised one fist to the air… and took off.
It currently trades a bit over US$960 per ounce. In its scorn for gravity, gold is dragging silver along for the ride. Medallions for second place now cost around US$19 an ounce to smelt.
What’s gold’s angle? Why such a sudden move?
“There doesn’t seem to be much reason to sell gold,” offered Darren Heathcote of Investec Australia.
What Darren means is that the reasons for gold bullion’s recent rise haven’t yet left the building. Falling asset prices and the threat of economic recession are driving worried investors into gold, like bears into a honey factory.
That’s an interesting topic in itself. A drop in one your investments causes an emotional reaction… it causes you to question the value of your choice. People don’t buy gold because stocks and the US economy look fundamentally bad. People buy gold because when something falls in value, they feel uncertain. And nothing is more uncertain than US economic growth today.
So, dollars that were sitting in stocks and derivative assets are relocating to Goldville. It’s investment demand at work. And that leaves the gold price open for both correction, and further gain. The companies best placed to pick up the gains in bullion are probably gold juniors. We’ll look at this more over the next few days.
The Daily Reckoning Australia