Commodities Essential - November 21, 2011

Do-or-die for stocks? What about gold? 


Back when gold sold off in September, along with most commodities and risk assets, the reasons were profit taking and margin calls - a flight to liquidity to help cover losses on other investments. Gold has begun to sell off again this month.


If gold falls through support, the nature of the decline will tell the story. A sharp sell-off may be a short-lived flight to liquidity that eventually attracts new risk-averse buyers. But a slow sell-off might indicate that gold is falling out of favor, losing some of its appeal as money escapes to the US dollar.


At this stage, I would expect the former; a notable decline in gold’s price should garner some new buying interest. After all, gold bulls still have a key driver to look towards: fear.

Commodities Essential. 21 November 2011

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