Market Volatility Set to Continue; Investors Turn to Gold

22 August 2011 - Which Way to Pay

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Market Volatility Set to Continue; Investors Turn to Gold

The chief executive of the Australian Stock Exchange (ASX), Robert Elstone says investors should expect sharemarket volatility to continue alongside the rise in food and energy prices to the background of developing nation public debt. With the threat of global depression infecting markets, investors are flocking to gold, sending it to the latest of a series of records.

Elstone commented that it is practically impossible for market volatility to dissipate in the short term, especially since energy and raw material prices unlikely to abate in the absence of a global depression; "I suspect it's at least got between one and three years of life," he said yesterday after the ASX posted a 7.4% rise in full-year net profit to A$352.3 million.

These comments only go to further the activity in the trading of gold which reached a new high of US$1881.40 an ounce at the weekend. In August alone the metal has soared in value by more than 15% whilst the Standard & Poor's US 500 stock index has fallen about 12% in the same time. It has also been observed that the central banks of developing countries are swapping out of major currencies for gold in their reserves in moves to weaken their currencies.

Although gold has always been seen as a safe haven in volatile markets, it is the opinion of some, including Jon Nadler - an analyst at Kitco Bullion Dealers - that the recent surge "lacks a lot of explanation" as gold logged its biggest weekly gain since February 2009. Nadler said that the rocketing prices make the probability of a deep reversal more likely with gold approaching US$2000 an ounce.

With trepidation dominating global markets, Elstone warned how conservative trading can be a self-fulfilling prophecy;

"I think the fear factor associated with either financial defaults - be they public or private in the banking system - is probably, as we saw in 2008, the biggest single driver of a global view that global financial risks are not receding," he said. "If anything they're greater now than they were 12 months ago.

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