With this volatility, is gold still a safe haven?

The volatility gold has been seeing gives the illusion that it is not a safe haven investment. In reality, investors still view the metal as a place to protect their wealth. Analysts blame gold's recent volatility on everything from hedge-fund liquidation, technical price triggers and inflation and deflation prospects.

By Myra P. Saefong
Dec. 4, 2012, 3:58 p.m. EST
Market Watch

SAN FRANCISCO (MarketWatch) — Gold hasn’t been trading like a safe haven lately, leaving investors to wonder whether it still is one.

“The volatility that the price of gold has seen lately gives the illusion that it is not a safe haven, but in reality investors still view it as a place to protect their wealth,” said David Beahm, vice president at precious-metals investment firm Blanchard & Co.

That’s tough to believe, however, given the steep drops the precious metal has suffered in recent sessions.

Gold futures dropped to a one-month low on Tuesday, with the February contract GCG3 +0.04% down $25.30, or 1.5%, to settle at $1,695.80 an ounce on the Comex division of the New York Mercantile Exchange.

Steep daily drops such as that one were common enough in November to send prices down 0.4% for the month, with a decline of around $40 on Nov. 2 and a fall of almost $26 on Nov. 28 being the standouts.

Analysts admit the moves in the last few months have been eye-catching.

Gold jumped $200 to around $1,800 an ounce in October, from about $1,600 in August.

“That’s a huge move,” said Phil Storer, director of trading at Dillon Gage Inc., a Texas-based company that deals in the futures markets. “It probably overdid itself and now is in the process of finding a comfortable price level again.”

“All markets do this, but gold is a headline grabber and gets more attention than the rest,” he said, adding that prices have pulled back about 60% since the high in early October, a “normal part of the market’s action.”

Fundamentally and technically, analysts blame gold’s recent volatility on everything from hedge-fund liquidation, technical price triggers and year-end book squaring to economic, U.S. fiscal cliff and euro-zone developments and inflation and deflation prospects. Through it all and despite the selloffs, however, investor interest in gold hasn’t wavered.

Last month, the U.S. Mint had its best month for American Eagle Gold Coin sales since July 2010, according to BullionVault, the physical gold and silver exchange for private investors online. Separately, ETF Securities said holdings in gold exchange-traded products also set a record in the second half of November at over 83 million ounces.

The Gold Investor Index, which offers a look at western investor sentiment toward gold by tracking buying and selling on BullionVault, also rose to a six-month high last month. “The gold price may look weak right at this moment but behind the scenes, investors in the West are clearly feeling the need to insure against financial risks in the coming year,” said Ben Traynor, chief economist at BullionVault.

Reasons converge

Given all the roles that gold tends to play, the metal has lots of ups and downs, but many analysts still see a strong year ahead for gold.

So far this year, gold futures have gained over 8%.

Blanchard & Co.’s Beahm expects 2013 to be “a great year for gold” due to the uncertainty caused by the U.S. fiscal cliff and the dependence of the U.S. economy on monetary stimulus from the Federal Reserve.

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