Gold Prices Suffer As Investor Fears Remain Low - Degussa
(Kitco News)- A lack of fear in financialmarkets is keeping a lid on gold prices, according to Europe’s largestprecious-metals retailer.
Despite the equity markets’continued correction following the worst month since the 2008 financial crisis,analysts at Degussa said in their latest market report that investors aren’tfleeing into gold because they aren’t afraid of a bear stock market.
The analysts noted that the lackof fear can be seen in a number of indexes like the financial market stressindex published by the St Louis Federal Reserve. Degussa noted that the indexstood at -0.997 at the end of October, “quite a notch below its long-termaverage.”
Meanwhile the CBOE VolatilityIndex ($VIX), also known as the fear gauge, has held relatively steady around20 points since the start of the month.
“The currently low level offinancial market stress is an interesting piece of information as it begs thequestion: Why are investors so relaxed? One answer could be: Investors believethat central banks will successfully fend off any unfavorable financial and/oreconomic ‘shocks’ going forward,” the Degussa analysts said. “If thisinterpretation is correct, it does not come as a surprise that the urge on thepart of investors to buy portfolio insurance has remained subdued.”
However, Degussa analysts alsonoted that central-bank support of global equity and credit markets might notbe the solution investors need and could create other problems like a currencycrisis that could ultimately drive gold prices higher.
“If in times of crises, centralbanks opt for bailing out the system by running the printing press, they runthe risk of stirring up inflation concerns at some point - as the policy ofincreasing the quantity of money seriously raises the chances of the purchasingpower of money dwindling,” the analysts said. “So getting into gold in ‘timesof missing fear’ could indeed help to improve the investor’s performance.”
The comments come as gold pricesstruggle to hold on to psychological support at $1,200 an ounce. Gold is beingweighed down by surging momentum in the U.S. dollar, which is trading near itshighest level since June 2017. Comex December gold futures last traded at$1,203.10 an ounce, relatively flat on the day. Meanwhile, the U.S. dollar index last traded at 97.29, down 0.36% on the day.
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