Gold is bouncing back as a safe investment after values have dropped to the lowest level seen in six years.
A poor run of global economic data and political concerns in Europe prompted a drop in prices.
Some investors viewed gold as a higher risk than stocks which led to five months of indifferent performance and, recently, three continuous weeks of price falls.
The price of gold fell by 5% in February to $1,578 an ounce, that’s a 12% fall from the October 2012 peak of $1,800.
Prices fell because investors moved away from the precious metal on the back of encouraging economic data and rises in worldwide stock markets, a trend that began in the final quarter of last year.
Economic turmoil
Now, investors are worried by poor data on Eurozone performance and about political deadlock in the United States and Italy.
Shares in Europe had fallen since the Italian election failed to install a majority government, which will lead to months of political horse trading and, potentially, another election later this year.
In addition, investors have concerns about continuing political stalemate in America, particularly since the much publicised ‘fiscal cliff’ debacle at the beginning of the year is still largely unresolved and will undoubtedly lead to major budget cuts in the coming weeks.
Despite the recent rally in gold, analysts are predicting that prices will not rocket against this economic turmoil.
Indeed, merchant bank Goldman Sachs predicts that gold spot-prices will be around $1,615 for the next quarter and then drop slightly to $1,600 in the third quarter.
In a note to investors, the bank said that after a decline in gold prices since last autumn, gold was on the up but set against promising US economic data they believe that a sharp recovery is unlikely.
Short selling
To underline the move away from gold, billionaire investor George Soros liquidated his stake in the precious metal by half in the last quarter.
Another reason put forward for the recent popularity of gold was support by many governments undertaking quantitative easing programs.
One indicator which has a direct impact on the price of gold is the value of the US dollar, which is gaining in strength.
Even with poor investor sentiment in the Eurozone, there is still short-selling of gold as investors continued to look for profits in other sectors.
Gold still remains a solid investment but sentiment could return though a lot depends on the political impact on the world’s economy.
