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Gold Prices Suffer As Investor Fears Remain Low - Degussa

Kitco News

(Kitco News) - A lack of fear in financial markets is keeping a lid on gold prices, according to Europe’s largest precious-metals retailer.

Despite the equity markets’ continued correction following the worst month since the 2008 financial crisis, analysts at Degussa said in their latest market report that investors aren’t fleeing into gold because they aren’t afraid of a bear stock market.

The analysts noted that the lack of fear can be seen in a number of indexes like the financial market stress index published by the St Louis Federal Reserve. Degussa noted that the index stood at -0.997 at the end of October, “quite a notch below its long-term average.”

Meanwhile the CBOE Volatility Index ($VIX), also known as the fear gauge, has held relatively steady around 20 points since the start of the month.

“The currently low level of financial market stress is an interesting piece of information as it begs the question: Why are investors so relaxed? One answer could be: Investors believe that central banks will successfully fend off any unfavorable financial and/or economic ‘shocks’ going forward,” the Degussa analysts said. “If this interpretation is correct, it does not come as a surprise that the urge on the part of investors to buy portfolio insurance has remained subdued.”

However, Degussa analysts also noted that central-bank support of global equity and credit markets might not be the solution investors need and could create other problems like a currency crisis that could ultimately drive gold prices higher.

“If in times of crises, central banks opt for bailing out the system by running the printing press, they run the risk of stirring up inflation concerns at some point – as the policy of increasing the quantity of money seriously raises the chances of the purchasing power of money dwindling,” the analysts said. “So getting into gold in ‘times of missing fear’ could indeed help to improve the investor’s performance.”

The comments come as gold prices struggle to hold on to psychological support at $1,200 an ounce. Gold is being weighed down by surging momentum in the U.S. dollar, which is trading near its highest level since June 2017. Comex December gold futures last traded at $1,203.10 an ounce, relatively flat on the day. Meanwhile, the U.S. dollar index last traded at 97.29, down 0.36% on the day.

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