Commodities saw volatile movement last week, driven by intensifying talk of U.S. double-dip recession, spreading of sovereign crisis from the European periphery to core economies, speculations of U.S. Fed's easing measures, and supportive macro-economic data.
Both benchmarks recovered later in the week in tandem with the rebound in equities.
Gold was the best performer as players fled to the precious yellow metal as a safe-haven investment.
The benchmark Comex contract gained +5.54 percent during the week with price rising to a new record high of 1817.6 Thursday before retreating after the SME announced margin increases.
While I believe gold will see a further correction in the near-term, gold will be the biggest beneficiary of low interest rates, rising economic uncertainties, and a new round of central bank easing that is coming.
Gold extended its rally last week, recording the biggest weekly gain since Q-1 of Y 2009, on global economic uncertainty and speculations of the U.S. Fed's QE-3 at appears solid in coming sooner rather than later..
The precious yellow metal rose to a new all-time high of 1817.6 Thursday before fading after the CME Group announced margin increases.
The CME raised the initial margin requirement to 7425 per contract from 6075, and the margin for hedging to 5500, up +22.2 percent from 4500.
Gold's correction may continue this week, but the CME's margin adjustment will not reverse the precious yellow metal's up-trend.
The market only used that as an excuse to take some profit from gold's recent exponential rally.
Gold's accelerated rise may have been overextended in the near-term. The chart shows that its close Friday exceeded the upper 3 standard deviation. It is now reasonable for gold to have a correction before resuming the rally.
The market has been talking about gold price "bubble" as it has risen more than +26 percent since the beginning of the year and almost 80 p[ercent of the gain was made over the past 6 wks.
The nominal gold price has risen to a record high and exceeded levels made in Y 1980. But, after inflation is adjusted, Gold price is still 20% below those levels.
Many people also compare the current economic situation with Y 2008 when Lehman Brothers collapsed, the current pattern of Gold price is more similar to the period from Q-3 of Y 2007 to Q-1 of Y 2008 instead.
If Gold is to resemble the movement at that time, price will need to rise +20% more it moved +50% back then.