A timely example of this is Cyprus. The beleaguered island nation was thrust into the global spotlight two weeks ago as its bank-led economy and secretive depository system was being publicly dismantled in order to stave off a government default. The very existence of the Eurozone was being questioned.
As much as Cypriot banks and their depositors were suffering, gold and its investors were making out as the precious metal raced back above $1600 an ounce.
“Any kind of distrust or nervousness or uncertainty about paper money, typically lends itself to people feeling like they need some kind of store of value or hard asset in their portfolio,” says Will Rhind, managing director of US operations at ETF Securities, in the attached video.
No sooner had Cyprus relinquished its grip on the news and gold began its retreat. Its correlation with the dollar appeared over, at least for a bit.
“The Cyprus event certainly crystallized a lot of demand for gold,” Rhind says, noting that “gold is just metal and it can be priced or traded in any currency you want around the world.”
And so, once that short trade was completed, and the big round number $1600 attained, the selling commenced and shaved nearly $50 off its price just this week alone.
“People view gold as money,” Rhind says, acknowledging the historical inverse relationship that it has with the dollar, while pointing out that it doesn’t always work that way. “There have been a lot of periods where that correlation has broken down… and we see the price of gold rising with a strong dollar.”
Still, with most liquid and accessible metal on earth now trading back down to its 52-week low again, he and other investors in this sector will tell you, once the next Cyprus hits, gold will be back in favor again
“I think a bigger event will be needed to push gold forward from here,” Rhind says, “and typically we’ve seen that coming out of the Eurozone… every time there has been elevated risk.”