Gold fell modestly yesterday while silver rallied as markets digested the unpalatable news of a potential global swine flu pandemic. Gold has now given up some of last week's large 5% gain (silver was up nearly 9%) after the very significant confirmation that the People's Bank of China has been secretly accumulating gold and had increased its reserves by some 75% (China nearly doubled its gold reserves to become the world's fifth-biggest holder of the precious metal - from 600 tonnes to over 1,054 tonnes of gold today).
Futures market participants were likely disappointed by the lack of follow through yesterday on the bullish Chinese central bank gold news and may have taken profits.
However, long term gold looks much better both technically and fundamentally. Both the Chinese central bank accumulation of gold and the rapid spread of the swine flu virus internationally are further bullish fundamentals.
The People's Bank of China's diversification into gold was not unexpected but it is bullish as it shows that gold is again becoming an important monetary asset and a key finite currency reserve. Central banks of other creditor nations are likely to follow suit as they are concerned about their large dollar, yen and euro reserves. Especially in a climate of quantitative easing, monetizing debt and international currency debasement.
The threat posed by swine flu is unknowable and uncertain at this time but fears are already growing regarding the possible severe economic effects that swine flu might have on the global economy. Stock markets have fall sharply internationally and the uncertainty posed by the swine flu outbreak may choke the very tentative green shoots of recovery seen in recent days. Should this continue it will likely see stock and property markets come under pressure again and see safe haven diversification into gold.
Gold continues to outperform most asset classes so far in 2009, in the last 12 months and in recent years (as seen in Performance Tables above) and looks set to continue to do so for the foreseeable future.