Gold price shows signs of life

Better late than never, the price of gold has had a bit of a run over the last couple of days.

Many traders and investors would have assumed that the US teetering on the brink of a fiscal meltdown as it came perilously close to hitting its debt ceiling, coupled with the risk of a debt downgrade, would have been the catalyst to see gold charge higher.

However, many of the old rules that gold has been associated with appear to no longer apply. Arguably the aggressive weakness in the US dollar over the last 48 hours has also played a part in the gold price once again retaking the $1300 level.

Also brewing in the background has been a resurgent demand for the physical commodity to supply Indian and Asian markets. The balance of consumption over the last six years has shifted – India has doubled its annual purchase and Chinese demand has increased, and it is now three-and-a-half times more than it was in 2008. It is this hunger for the physical product that has helped stabilise the yellow metal’s price, as traders from the west have been happy to flood the market with paper exchange-traded-funds.

With equity markets looking set to have a run higher, certainly until the next round of US political-inspired issues, it are difficult to see the greater appeal of this security hedge.

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