BREAKING NEWS
July 31, 2007
Gold May Not Be a Safe Haven But Analysts See a Reversal
If you thought gold might be a safe haven in the current market turmoil, think again.

The bullion price closed last Tuesday at $674.90 (U.S.) an ounce, dropped to $662.90 on Thursday and fell further to $661.20 on Friday. It ended yesterday's session at $665.30.

The picture doesn't improve for gold stocks. The gold subindex on the Toronto Stock Exchange slumped 7.2 per cent over the week, a bigger decline than registered by the S&P/TSX composite index.

Martin Murenbeeld, chief economist of Dundee Wealth Inc., wasn't surprised by the turn of events. In an environment where the fear is of rising interest rates, investments that depend on liquidity sell off, and that includes the gold market to some degree, he said in an interview.

Patricia Mohr, commodities expert at the Bank of Nova Scotia, said gold, which has fluctuated in a broad trading range for the last several months, is indeed regarded as a safe haven by people in the Middle East, India, China, Hong Kong and likely Taiwan as well, but "it isn't seen as a safe haven in G7 industrial countries."

Both Mr. Murenbeeld and Ms. Mohr see bullion strengthening. Mr. Murenbeeld, who doesn't believe that liquidity is going to tighten significantly, has gold likely averaging $667 an ounce in the third quarter of this year and then rising to the mid $700s next year, supported by a further slow erosion of the U.S. dollar.

But he adds a caveat. "If things like we saw last week get too nasty, you know what the central bankers are going to do; they are going to cut rates and gold will turn on a dime and it will go up," he said.
The Globe and Mail