The Web Lender

The market is off to a scintillating start in 2012 and many of last year’s worst performers are leading the charge. Europe debt worries seem to be dissipating a bit, helping the the euro bounce back. And investors are dumping stodgy Treasury bonds, pushing yields higher in the process. Risk is back.

So why is gold, the quintessential safe haven/fear trade, up about 7% in 2012 too?

Gold has been a valuable and highly sought-after precious metal for coinage, jewelry, and other arts since long before the beginning of recorded history. Gold standards have been the most common basis for monetary policies throughout human history, being widely supplanted by fiat currency only in the late 20th century. Gold has also been frequently linked to a wide variety of symbolisms and ideologies. A total of 165,000 tonnes of gold have been mined in human history, as of 2009. This is roughly equivalent to 5.3 billion troy ounces or, in terms of volume, about 8500 m3, or a cube 20.4 m on a side. The world consumption of new gold produced is about 50% in jewelry, 40% in investments, and 10% in industry.

You can probably thank the world’s central bankers for helping fuel a gold rush. The funny thing about gold is that it often rallies when investors are terrified about deflation. But it also moves higher when investors start anticipating inflation. And nothing cries out inflation like printing dollars (and euros) to try and halt a global crisis.

So as long as central banks around the world are fearful of letting Europe’s woes spill over to their shores and continue to act accordingly, gold could head higher.

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