After a steady climb to a record high of $1920.30 per ounce in August and September, gold prices plummeted up to 20% from their 2 year high.
However, as the week wears on, gold is gearing up for its fourth consecutive rise in as many days. Influencing factors on gold’s rising prices are outlined in-depth on both Forbes’ website, as well as Reuters, but the main factors affecting the price of gold today can be boiled down to three things:
European Union Economics
The leaders of the EU are scheduled to meet today to attempt to resolve the spreading debt crisis within the euro zone. Plans tentatively include increasing the euro zone’s bail out fund toover 1 trillion euros ($1.39 billion) as well as recapitalizing major European banks and lightening Greece’s debt load through write-offs. The markets are skittish to give their total confidence to a resolution, and this has gold on the rise.
As ANZ’s head of metal sales Peter Hillyard told Reuters,
“I believe the gold price will be higher based on what I think will be a failure to resolve, in a satisfactory way, all of the euro zone problems and so on…I’d rather be long of gold than short of it.”
Implied Volatility
The price volatility of gold futures, which neared a record high in August, has dropped drastically, implying that traders no longer see gold as the play-it-safe option it traditionally was. As of late, gold trades right along side with riskier assets – all of which are deeply impacted by the aforementioned European debt crisis. Volatility hit its highest point (37) on September 26th, and dropped to a mere 26 last week.
Commodities Correlations
According to Reuters, gold’s “correlation with European equities has reached its most positive in nearly six months, while its correlation with the copper price — often viewed as a key indicator of investor risk appetite — is at 70 percent, its highest in a year.”
Boosted largely by China’s manufacturing sector, the uptick in commodities only benefits gold. As Credit Suisse analyst Tom Kendall told India’s Economic Times,
“Gold popped up this morning along with most of the commodities markets. The beginning of the EU debt resolution has had a strengthening effect on commodities and equities as a whole.”
