Gold prices fell to their one month low today even though risks have been rising of late, with geopolitical flare-ups in Ukraine and the Middle East and shooting down of Malaysian passenger jet.
It appears that investors are focusing more on the brightening economy and better-than-expected earnings. These two factors combined with benign inflation and still accommodative monetary policy remain tailwinds for risky assets like stocks. As a result, simmering geopolitical tensions have failed to drive investors to gold.
Over the last three months, gold prices are almost flat whereas S&P 500 index has jumped almost 7%.
Developments in India and China—two largest consumers of the precious metal—have also not been very supportive. Last year, China had overtaken India as the largest consumer of gold in the world. But during the first half of this year, gold demand fell by almost a fifth in China.
Gold investors were expecting the new Indian government to cut import duty imposed last year but that did not happen. Gold imports into India continue to be impacted by restrictions imposed by the government and the central bank.
Are investors ignoring geopolitical risks and focusing on the economic recovery and earnings or has gold lost its safe haven appeal? Join the discussion below!