NEW YORK : A Barclays Capital research notes that gold prices are vulnerable to a recession - more so than some of the other commodities. In the last recession of 2008, gold prices appreciated the least among precious metals.
This time however, gold prices have not considerably softened before an impending recession - as it did in 2008.
Of all commodities, gold is placed as the eighth most vulnerable in a recession, according to the BarCap study, which took into account inventory levels, correlation to emerging markets and their performance in the crisis of 2008.
Gold's strong performance in previous economic downturns is a positive, but not enough to offset these other negatives. It is important to note, however, that gold's high ranking is also a function of fundamental factors such as costs and emerging market exposure, which are arguably less important in influencing gold prices than they are for other commodities.
In addition, gold-supportive factors that are less important for other commodities, such as being a hedge of economic and financial uncertainty, have not been taken into account in the BarCap research.
"Therefore, the implication of gold's high ranking needs to be hedged somewhat. Nevertheless, it does suggest that if the financial factors that have supported physical investment buying were to fade, then gold prices could start to look very precarious indeed."
Source: zawya
