Last Updated : 04 January 2013 at 11:55 IST
The problem with safe haven assets is that people generally want them only in unsafe times.
When the sense of safety returns, they generally develop a risk appetite. In other words, risk appetite is having an inverse relation with sense of safety. And commodities are risk assets.
Some of the analysts and economists I talked to said the worse may be over for global economy.
“Though it cannot be said about Europe, at least US has taken a U-turn.” said Martin Patrick, an economist from South India. “Growth is returning and I believe the worst is over” said Kunal Shah, Head-Reseacrh of Nirmal Bang Commodities.
So, in the short-term, even as gold, silver—the former much more than latter-- may find support from Eurozone crisis, for the long term, things may be bleak, more so for gold.
[Silver is also an industrial commodity and given the clean energy drive and other aspects, solar power is in the dressing room before it may take the center stage in the strategic energy calculus of nations and thereby helping silver.]
The debt ceiling debate in the offing is the worst drama that could be enacted in the Capitol. But being the 11th hour specialists they are, it may get worked out well: there would be little more of drama and a close-to-the-flesh nail-biting-finish, but things would eventually by okayed and US defaulting on its debt gets to be a more-than-remote prospect.
“As the economy develops and GDP improves, the debt to GDP ratio would come down eventually alleviating the fears.” said Vijaya Kumar, Investment Strategist, Geojit BNP-Paribas.
“US, whose domestic currency is also the reserve currency of the world, is not going to default.” he added.
“See, US may still be able to manage its affairs just by selling its gold reserves, if a worst case scenario comes to play.” indicated Martin Patrick.
What is good for the economy is often bad for precious metals and vice versa.
This may be the time when the metals complex may see its sunny days coming to an end, that is until the next cycle of crisis would show up.
Does this mean gold has become useless? Does it make sense to own long gold?
“First of all I have to tell you that we are perhaps at the beginning of a U-turn in case of global economy as fart as US is concerned, I am still apprehensive of Europe.” said Martin Patrick.
“However, in a best case scenario, people would still flock to commodities, especially base metals and crude oil and would invest the proceeds out of selling them in the very safe-haven asset: gold.”
“It makes perfect sense to go long on gold even when the times are safe.” advised Kunal Shah. “But I will not suggest buying gold at this levels as there is yet another correction in the offing.” he cautioned.
Gold is worth investing in, come what may.
Gold is worth investing in, come what may.
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