Is Gold Still a Safe Haven?

Michael Teague  |

Late last week, gold started to go over the precipice, bringing other precious metals with it, and all were in what looked like a downward spiral throughout Monday in a frantic sell-off.

On what was already a bad day for equities that saw losses of 1.79 percent on the Dow, 2.30 percent on the S&P 500, and 2.38 percent on the Nasdaq, gold prices dropped almost 9 percent against the dollar, down to $1,365 per ounce.

The situation for both equities and commodities was only worsened with the shock of reports of explosions at the Boston Marathon that came in shortly before the close of trading.

Typically gold, and to a lesser extent other precious metals, are considered a “safe-haven” investment. However, recent events have overturned the traditional scenario.

Against many odds, stocks have soared in 2013. With investors seemingly comfortable with higher risk levels, gold and other metals are likely to suffer as a consequence. But there are unique reasons for the predicament in which gold currently finds itself.

The EU bailout of the small Mediterranean nation of Cyprus may have been approved, with billions on the way. But news last week that the Cypriot government would be selling its gold reserves to help fund the bailout completely undermined confidence in gold as a safe haven.

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European Central Bank President Mario Draghi has even pressured the country to sell gold, but with the Eurozone in deep recession and struggling, it is believed that other troubled economies in the region might also be prompted to sell their reserves if and/or when the situation gets more desperate than it already is.

If Italy, Spain, Ireland, Portugal, or Greece begin offloading their reserves, the impact could be even more disastrous for gold prices than the last two days of trading. Luckily, this seems to be a long way off, but that the very thought of it has investors so nervous was reflected in the bleak picture painted by yesterday’s ETFs:

Physical Swiss Goldshares (SGOL) was down 8.71 percent to $133.89, SPDR Goldshares (GLD) was down 8.78 percent to $131.31, the iShares Gold Trust (IAU) was down 8.85 to $13.90, and the UBS E-TRACS CMCI Gold TR ETN was down 8.36 percent to $35.86

The story was much the same for silver and palladium:

The iShares silver trust (SLV) was down 12.62 percent to $22.09, ETFS Physical Silver Shares (SIVR) was down 12.67 percent to $22.60, the UBS E-TRACS CMCI Silver TR ETN (USV) was down 12.89 percent to $31.62

The ETFS Physical Palladium Shares (PALL) was down 7.64 to $63.92, while the UBS E-TRACS Long Platinum ETN was down 6.21 percent to $15.87.

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