For centuries Gold has been the most craved, worshipped and valuable asset of human civilisation. But trading gold had never been easy as it is easy now. Since the advent of globally integrated financial markets the trading in Gold is easy like never before. For decades gold has been considered as the most safest of the assets. When ever investors felt that their stock investments are not safe enough, they always preferred the investment in gold and so they remove most of the money from stocks and invest in gold whenever the economic conditions deteriot. Because of this is safe haven status of gold, gold prices have mostly moved inversely proportional to the movement in the stock markets i.e; whenever there was a chance of recession stock markets fell but the prices gold rose. And also because of its high demand and huge shortage the prices historically have always been steadily rising. This steady rise has always kept speculators out of gold trading though trading in gold through futures and options instruments is allowed.(Speculators are usually traders who earn money through short term trading in an asset or commodity. They are not worried about the actual value of the asset. Speculators were responsible for the fall of crude oil from $140 to the lows of $30 in 2008). Absense of speculators also has added to the characteristics of safe haven to gold. But since last 6-7 months gold is acting totally opposite to its characteristic behaviour. According to its characteristic behaviour it should rise if stock markets fall, but now a days gold is following the direction of the stock markets. If you observe the yearly chart the gold prices have actually risen sharply when compared to the prices of last year due to the safe haven buying done by investors in the wake of the European debt crisis. But when you observe the daily movement of gold since the last couple of months, gold has exactly replicated the stock markets or for that matter the crude oil(riskiest asset to trade). This replication of stock movement by gold prices is clearly an indication that speculators are commanding a huge volume in gold trading and so the safe haven buying of gold has stopped. Speculators trade in a commodity only if they find that the commodity is no more going to rise steadily. Presence of speculators, replication of movement of stock markets clearly shows gold might have reached its peak and also shows that gold is no more a safe investment. Infact many financial institutions and financial experts have classified gold as risky asset and cut down on safe haven buying. Now what happens next? If stock markets rise from here then the speculators will increase the price of gold artificially to unimaginable levels and then gold will be a asset bubble and when markets start crashing due to a possible financial crisis then speculators will start short selling gold which will cause a crash in gold price like the one happened with crude oil price 2008. I expect a 40-50% minimum fall in gold prices from the peak if there is a financial because of europe.
Now the biggest question is "If gold is not the safest asset then what is the safest asset to invest?"
Now the biggest question is "If gold is not the safest asset then what is the safest asset to invest?"
