Is gold proving its worth as a safe haven?

Goldman says so, via Bloomie:

Goldman Sachs Group Inc. says that “fear” has made a comeback and gold is benefiting as stocks slide and investors fret more about the possibility that the U.S. economy may tumble back into recession.

Bullion’s recent advance “happened on the back of the market sell-off and spike in volatility,” analysts including Mikhail Sprogis and Jeffrey Currie, wrote in a report dated Oct. 30. “In our view, it represents a rebound in fear-related demand for gold with ETFs beginning to build after several months of declines.”

In my view it is not stock market volatility that has lifted gold recently but the ructions in Italy which threaten serious monetary meltdown. That has been enough to lift the yellow metal despite a rising DXY:

A concurrent rise in DXY and gold is quite unusual as you can see.

This is why I remain skeptical of gold today. I see DXY going higher yet and probably taking off into into of cycle bust as well. Though the falling AUD has also helped so far:

I remain concerned that if an end-of-cycle bust really gets going then gold will fall hard just as it did in the GFC. I’ll be looking to buy then not before.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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