Houston, we have separation!

Well, that was interesting. As equities crashed late in the US session yesterday, gold went up and broke through $1200, getting as high as $1210. Throughout the day here is Asia, gold has floated around $1200.

Whatever the cause of the crash - a mistaken sell order or a case of bad nerves over Europe, or both or neither - this behavior cemented the case that gold has re-gained its safe haven status, despite the dollar also being a safe haven. This marks a major milestone whereby gold has gone full circle around the financial crisis back to where it started,  and now has “crisis legs” as well.

The dollar and gold now share the qualities that they could rise due to evidence of recovery AND risk aversion causing a flight to safety. That’s kind of cool, because it means strength from both rising and falling markets.

In a few hours is Non-Farm Payrolls, the biggest monthly event in the currency world. The ADP report this week was moderately good, and continuing unemployment claims decreased slightly, so expectations are there for some moderately good news. Last month’s NFP established a move in a positive direction, so any bad news tonight will be very bad for the recovery thesis.

This means there is slightly more likelihood of disappointment, which would be bad for commodities. That will be bad for silver, which has not participated as directly in being a safe haven. It also could be bad for the dollar, which would lose the benefit of an anticipated rate hike in the near future, though a panic would send it higher as a safe haven. So the negative scenarios could be good for gold. Conversely, if the NFP release is good or very good, the dollar could stay put and commodities could rally. Gold may not benefit as strongly, but it should stay strong.

Since gold has broken through $1190 and $1200 this week, signs are very good it will get past its old high of $1227. And if it closes around $1200 it will have achieved its highest weekly close, ever. Let’s see what happens.

This entry was posted on 07/05/2010 at 11:20 am and is filed under Gold. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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