Gold bars are displayed at a gold jewellery shop in the northern Indian city of Chandigarh May 8, 2012. Despite the fresh mess in the euro zone, gold dropped to a four-month low, below $1,600 (U.S.) an ounce. Scared investors are moving into dollars, Treasuries and bonds. But not gold.Ajay Verma/Reuters
The nice pop in the gold price is turning out to be the big story of the morning. The yellow metal, everyone's friend in times of trouble, has started acting like a safe haven again, rallying an astonishing $50 (U.S.) an ounce to $1,610.
The upturn in gold is the reason Toronto stocks are outperforming Friday, compared to most other bourses around the world. The Toronto market is down only 1.1 per cent, compared to the S&P 500, off 1.9 per cent, and German stocks, leading the global stock sell-off, down a scary 3.7 per cent. Toronto's relatively better performance is all the more noteworthy because it isn't getting any help from energy stocks. In fact, oil is down $3.08 a barrel to $83.45, which would normally be a big negative.
Gold had been down in overnight trading but started to pick itself off the floor around 8 am. The upturn then got supercharged after the release of U.S. jobs market data at 8:30 and just kept motoring higher.
For the last few months, gold has been getting pummelled with other risk assets and the upturn is a sign many investors are beginning to bet that more monetary easing is on the way. Money printing is always an elixir for gold.
Gold bugs have always thought worries over the global banking system would also power bullion higher, but so far that hasn't been the case.
Toronto gold maven Eric Sprott put out a report Thursday saying he's been surprised that gold hasn't been getting much traction on the upside due to Europe's banking problems, but says it's only a matter of time before people start to flee paper money for the safety of gold, particularly in weaker countries. For believers in gold, here's Mr. Sprott's view:
"Although the last eight months have not played out the way we would have expected for gold, they have played out the way we envisioned for the banks. The question now is how long this can go on for, and how long gold can remain under pressure in a banking crisis that has the potential to spread beyond Greece and Spain? So much now rests on the policy responses fashioned by the US Fed and ECB, and just as much also rests on what's left of European citizens' confidence in their local banking institutions. Neither of these things can be precisely measured or predicted, but we continue to firmly believe that depositors in Greece and Spain will choose gold over drachmas or pesetas if they have the foresight and are given the freedom to act accordingly. The number one reason we have always believed gold should be owned, and why we believe it will go higher, is people's growing distrust of the banking system - and we are now there. We will wait and see how the summer develops, and keep our attention firmly focused of the second phase of the bank run now spreading across southern Europe."