Demand for the commodity has been steadily climbing this month, with the price of bullion up 14% in August amid speculation that Federal Reserve Chairman Ben Bernanke will take further measures to stimulate the U.S. economy.
Gold (NYSE:GLD) hasn’t seemed like much of a risk to investors likely, gaining a few hundred dollars an ounce off its prices earlier this summer. But Matt Zeman, a strategist at Kingsview Financial in Chicago, says there is “too much risk of a wicked correction lurking around the corner to enter the trade right now.”
Today, gold (NYSE:GLD) futures for December delivery fell $30.60, or 1.6%, to $1,861.30 on the Comex in New York, falling another 3.5% after hours, making for the biggest one-day decline since July 1, 2010. Gold has been in a bull market for the last 11 years, and has surged 17% in the last three weeks, reaching record highs in U.S. dollars, euros, British pounds, and Swiss francs today.
But all it took was a “little stability in the stock market” to send gold tumbling, said Frank McGhee, head dealer at Integrated Brokerage Services in Chicago. The S&P 500 rose 3.43% today, the Dow rose 2.97%, and the Nasdaq rose 4.29% on news that the number of banks on the FDIC’s “Problem list” declined last quarter for the first time since 2006. Given that banks were responsible for the recession the country has yet to recover from, improvement in that sector bodes well for the economy as a whole, making safe-haven investments like gold (NYSE:GLD) less of a necessity.
Investing Insights: Is Another Gold Boom Waiting to Happen?
However, it’s not uncommon for positive economic data to be misleading, or if not misleading, then just insufficient. The economy remains in a state of near-crisis, and gold (NYSE:GLD) prices have tended to fluctuate daily depending on the latest economic news, but have still managed to hold on to significant gains. No single piece of data will effect a lasting gold sell-off, and with unemployment still high, the housing market flooded with foreclosures, and Europe still so unstable, gold is likely to hold on to near-record prices for a while still.