U.S. stocks cratered Thursday, sending the Dow Jones Industrial Average -4.31% to its worst-point drop since December 2008, as fears about the global economy sparked a broad sell off that accelerated into the close.
Gold rallied to fresh highs this afternoon shortly after the publishing of US jobs data which reported 400,000 Americans made first time claims for jobless benefits last week. The figures were roughly in line with market expectations with US unemployment holding steady at the 9.2% level. It is clear that the markets are quite skittish at the moment and the labour market is being watched closely for confirmation that growth may have stalled in the US economy. Presently there is some growth but it remains pretty anemic – not robust at all. It is clear that world markets are walking perilously close to a double dip recession and data is being scrutinised given there is less in the Fed’s armoury in terms of monetary options this time around.
Gold has gained 19% so far this year and the 11 year bull run has been its longest since 1920. For the balance of 2011 the gold market is expected to remain bid up and we fully expect the market to have made gains of close to 32% at $1850 before the end of the year. That said, the speculative element currently in the gold price in the form ofCOMEX gold futures has grown by about a third in recent weeks which gives me some concern how well the current gold price can be sustained. In short, we favour the upside but are concerned the bullion market could turn parabolic which would not be favourable in the longer term.
I remain constructive towards the gold price and in particular towards gold equities. Gold demand remains robust and we believe the current environment is positive for a safe haven asset such as gold, with European sovereign debt concerns spreading to larger economies such as Italy and Spain, and the US continuing to struggle with her growing debt.
Looking ahead, I believe it will continue to be well supported in a world of negative real interest rates, given inflation in both developed and developing markets, central bank buying (from developing economies in particular) US dollar depreciation and continuing sovereign debt issues.
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