Industry experts have long touted the value of gold bullion as a safe investment during times of war or recession. Even when global currency values become erratic, gold has always been upheld as the ideal choice for the wary investor. Recent events, however, have turned this notion on its head. With the ongoing US debt crisis and uncertainty about the stability of the US economy plaguing the world, it was only natural to see gold in high demand. Bloomberg reports that the year 2011 has seen an increase in gold investment of 33% with a record peak on August 22: gold futures for December delivery closed at almost $1.891.90 per ounce on New York's Comex. Only two days later, however, investors decided to sell en masse, taking advantage of the record high and effectively dropping the value of gold to a level that has not been seen since December 2008.
Although this represents a successful trade for many investors who got in while the prices were low and sold at the record-breaking high rates, smaller investors who were in for the long haul, particularly with the threat of recession still present, may have failed to take advantage of the high selling price. Now, with the current low, that becomes a golden opportunity missed. On the other hand, if current efforts to stabilize the economy do fail and result in a global recession, in all likelihood, the value of gold should recover just as quickly as it fell.
A recession, however, is hardly an ideal situation. A Commerce Department report has acknowledged that US durable goods, particularly for aircraft and automotives, are now exceeding July forecasts. As Adam Klopfenstein, senior market strategist at MF Global Holdings Ltd., Chicago, noted, this increase (and the accompanying rise in US equities) is a good sign for a recovering economy but "?doesn't bode well for gold." All in all, this raises a rather interesting dilemma: Should investors make use of the drop in bullion prices to buy even more bullion with the expectation that it will rise again at some point if not in the near future, or should they focus their money elsewhere for a stronger guarantee of returns in the short term, especially if a recession does hit? While the answer remains dependent on the individual's perspective, it does call for a closer look at just how safe traditional haven assets really are.