Spread Bets and the Golden Safe Haven
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On September 11 gold was trading at its lowest level since October 2007. Many thought that the precious metal had finally lost its appeal as a safe haven investment.
As we know, in 1979 the sharp Gold rally to its previous record high of $850 saw a price correction which moved just as quickly as the rise itself. Back then the price of gold fell almost 50% in 2 years.
Talking to a number of spread betting companies recently I found out that despite gold hitting an all-time high of $1,030 in March and steadily falling since then (albeit it with large daily fluctuations) many clients have remained positive about the price of gold. The $300 dollar fall would certainly have been a painful fall for the bulls. However perhaps those investors knew there were more economic woes around the corner and that gold would again become a safe haven. Whatever their reasoning for remaining bullish about the price of gold the September 2008 banking crisis delivered what they were looking for.
On 18 September gold had its biggest ever one day increase, it shot up $90.
Rumours of a huge failure somewhere in the States fuelled the move as the dash for safety gathered pace throughout the day. In general, a shift of that proportion is an indication that something has gone wrong somewhere and investors (unable to pinpoint the source) run for the theoretical safety of the yellow metal.
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Since then it has not been plain sailing, as Simon Denham of Financial Spreads recently said “Commodity markets are being perverse in the extreme with huge moves on an almost daily basis across the board. The smallest trading range session in Gold over the past two weeks has been some $20 with over $30 being the norm. This reflects a price variation of 3% every day”
“At the moment Gold remains a quasi-bell-weather instrument against both news and the greenback with dealers rushing to buy on anything ‘bad’ and looking to offload whenever anything ‘good’ occurs.
“If the events in the States continue we can expect serious pressure to the upside but, conversely, if the dollar bounces from its recent weakness the opposite is likely to occur”
But which is it?
So do the spread bettors know more than the rest of us? According to a paddy power trader spokesman “Gold trades are up a 266% in the last month alone. It seems our clients think the only way is up for the precious metal as, 83% of them are going long on gold.”
Time to follow the crowd? Or is it best to sit this one out?
"Spread Bets and the Golden Safe Haven" last update by RThomas, 01-Oct-2008
Warning: Financial spread betting carries a high level of risk. You can lose more than your initial investment or stake. Financial spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.
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