Jan 16, 2012

Gold No Longer a Hedge Against Currency Debasement

On Friday after the close, S&P issued a credit downgrade on a number of European countries. This had been anticipated ever since they had been placed on credit watch in December. As would be expected, the Euro dropped to a new multi-month low against the USD and stock markets followed. What may not have been fully expected is that Gold also dropped with the news and tracked the US equity market. Gold was supposed to represent a hedge against fiat currencies (read "paper money") and should have spiked when the European situation worsened. Yet this did not happen and it traded like any old investment asset in line with overall risk sentiment. Buy at your own risk. (For more details, refer to Gold Appears to have Lost its Shine and a more recent WhatIf post Technical Bounce in Gold To Present a Selling Opportunity)

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