Gold, once a safe haven, loses luster to cash

Bob Moon Dec 15, 2011

Kai Ryssdal: Perhaps the best thing we can say about the price of gold today is that it didn’t fall as much as it did yesterday. The value of an ounce has slipped below the $1,600 mark, wiping out the gains from the rally this summer. Given that gold’s supposed to be the safest of safe havens, our senior business correspondent Bob Moon has been asking why the sell-off.

Bob Moon: First off, you can blame the irresistible allure of all those profits investors have made on gold this year.

Axel Merk: A good thing can become too much of a good thing.

Fund manager Axel Merk says as the European debt crisis grew worse and the value of gold surged, a lot of big investors flocked to the precious metal. The irony is, that same crisis is now sending them back to cash while they can get it. Many fear the credit markets might seize up.

Fred Schoenstein is a gold trader at Heraeus Precious Metals.

Fred Schoenstein: While gold was billed as a safe haven trade over the course of the last, whatever, six, eight months, it does also have that risk element.

The risk that investors can always switch their preferences — with little warning.

Schoenstein: The perception changes.

And they now seem to consider the dollar the best way to have quick access to their assets. At Global Hunter Securities, metals analyst Jeff Wright says investors may not make the returns they’ve enjoyed from the run-up in gold prices, but they won’t be losing money, either.

Jeff Wright: You know your principal is safe, as gold has become much more volatile over the past three to four weeks.

Fund manager Axel Merk says there’s a lesson here for smaller investors.

Merk: How much risk can you stomach? How much volatility can you stomach? If you cannot stomach the downdraft you have in gold right now, if you’re not comfortable with the ounces of gold you’re holding while you’re looking at the daily price movements, then you’re probably holding too much of it.

Merk says he’s keeping a sizeable position in gold, though, because he still considers it one of the most secure assets. He says it may be there’s no such thing as a “safe” asset anymore. It could be that the dollar, as some commentators have pointed out, just looks like the nicest horse in the glue factory.

I’m Bob Moon for Marketplace.

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