The price of gold is down for a third day in a row, almost erasing gains for the year.
The precious metal has fallen in value by almost 4 per cent this week and is off about 1 per cent Wednesday. It recently traded at $1,588 (U.S.) an ounce.
The collapse looks surprising given that investors are seeking havens in response to the political and economic uncertainty in Greece. Investors have been pouring into the U.S. dollar for safety, which can work against the price of bullion, but there is more going on here than currency swings. (The price of gold is also declining in terms of the euro).
Traditionally, the precious metal has rallied during times when the future of the euro looks threatened, as it does today.
Colin Cieszynski, analyst with CMC Markets Canada, says investors should read five key things in gold’s current weakness.
1) Despite the European debt crisis and the effect it may have on the global economy, investors are not expecting another financial meltdown.
2) The slowing global economy, along with falling commodity prices, is likely to put a cap on inflation for some time.
3) Greece may have to go back to the polls next month if politicians can’t establish a coalition government. But eventually the country will end up with a functioning government.
4) Even if Greece and a few other countries have to leave the euro zone, their departure would be manageable. The unified currency is bigger than any one member.
5) The European public has sent a clear signal that ignoring problems or clinging to failed policies like austerity will no longer be tolerated. The public is demanding real, balanced, and sustainable solutions to the crisis.
“What gold appears to be telling us is that while we may be going through a period of turmoil in the short term, this could force politicians to make the tough decisions that could strengthen the global economy and financial system over the longer term,” Mr. Cieszynski wrote in his morning note.