After the earthquake struck Japan last Friday, the prices of both gold and silver initially strengthened, but since then have fallen considerably. Its towering role is that of a source of immediate liquidity, 24 hours a day, 7 days a week. It is not a surprise that from the background of a rampant declining Japanese stock market and pressured global equities, the need for cash as a rapid source of liquidity is urgent. Gold fulfils this role perfectly – as it did during the financial crisis of 2008.
In times of crisis gold is destined to be under pressure. That is why a lot of investors hold gold, as a source of reliable liquidity in times of dire need. A price under pressure in troubled times does nothing else than highlighting the true character of gold as an asset.
In a short terms, the pressure on gold may well continue as margin calls for investors could continue to increase as global markets remain under pressure. Not only gold, but silver, platinum and palladium in their ETF’s could further accelerate the short term selling pressure on the metals. That pressure has the potential to persist as long as the visibility in global financial markets remains low. However, the underlying investment case for precious metals going forward remains strong and should be borne in mind by investors with a time horizon that exceeds a couple of weeks.
In a long term investment case for the sector remains intact, but that precious metal equities could also come under short term selling pressure as a result of heightened risk aversion. (source http://www.citywire.co.uk)