Gold began the year near $1,400 per ounce, and spiked to $1,900 in late August/early September. Trading has been volatile since, with gold losing roughly 15% of its value in the last part of September, regaining 10% into the early part of November, only to give that back and more in December.

 

Gold’s attraction varies in the eyes of the beholder, but the metal has benefited in recent history from its status as a safe haven, inflation hedge and alternative currency, particularly to the troubled euro and fiat currencies. The downside evidenced in December stemmed in large part due to shifts to austerity and away from stimulus. With this, inflation concerns abate, as does gold’s role as a hedge. In addition, as Europe strives to resolve its debt crisis, speculation has risen about central bank gold sales. 

 

The Federal Reserve’s restraint and Europe’s issues have also pushed the dollar higher, which works against gold. Lastly, technical factors come into play; selling begets selling as trend lines are broken and margin calls covered.

 

In the last few days, the price of gold appears to have found some footing on improved macroeconomic data and a weaker dollar, together with apparent support from physical demand. While recent volatility may have dented confidence in gold’s safe haven status, gold’s appeal may ultimately balance on moves toward austerity vs. stimulus. As we head into the new year, the scales appear to be tipped to austerity.

 

Disclosure

There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes, and the impact of adverse political or financial factors.

 

The views expressed are as of 12/19/11, may change as market or other conditions change, and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that the forecasts are accurate.

 

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

 

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