Gold is the traditional “go to” when stocks perform badly as a safe haven. People think that when the sh*t hits the fan, gold has inherent value where the value of money is potentially an illusion. So why during this crisis,when we are finally at a time where you might “conceivably” have to wack off a hunk of gold to pay for soemthing if the banks get run on, why is the price of gold dropping with everything else?It doesnt make sense.
Because people are liquidating. Instead of moving to securities that are considered ‘safe’ or ones like gold that typically move in the opposite direction as the rest of the market, they’re panicking and selling.
IOW, they moved to a cash position to ride this out.
Another reason recently may have been brokers raising margin requirements on gold futures, makes some people dump their positions. Theoretically that’s zero sum, as many shorts must be closing positions as longs. But it might feed back more on the long side. It’s generally assumed that higher margin requirements on commodity futures are bearish for the physical commodity in the short term.
That said, gold (on the futures) is up 3% today, stock market up 4.something% at the moment.
Gold is only 1% below its low in mid-January. The recent plunge just undoes the big upward surges in February and early March. That still leaves the question: why did gold first surge upward when the stock drop began, and then change its mind?
I am quite curious about this myself. I hope someone shows up with the correct answer, but meanwhile will give my own thoughts. Part of the answer is that gold is treated somewhat like cash: investors who want to buy bargain-priced stocks — or who need cash to cover margin calls — are selling gold to raise cash. But I don’t think this is the main reason.
Before the virus hit, there had been an on-going flight to gold based on the debt bubble and the inflationary risks implicit in the fragile world economy. And the epidemic could lead to shortages which would put upward pressure on producer prices.
But in fact, the stock market plunge was set off by a huge drop in oil prices. The epidemic is reducing demand, so deflation might be the immediate danger rather than inflation. Moreover governments and central banks (at least in the U.S.) have signaled that they will continue dropping interest rates, continue flooding the banks with newly-printed “money,” and perhaps even let the taxpayers bail out any troubled corporations. Gold is a hedge against inflation (and bond defaults), but the present environment may be deflationary (and corporate losses will be covered by taxpayers).
If/when the world economy emerges from its present predicament, the debt bubble will be bigger than ever, so gold may still seem attractive to long-term investors.
They are wrong. Gold has no inherent value. Gold is not a necessity for survival.
Gold’s only value comes from the “ooh, shiny” response it tends to evoke in humans. That has made it valuable for things like jewelry.
If you look back at the aftermath of WWII, those who invested in gold found out the hard way that gold had very little value in Germany after the war. If you were starving, you couldn’t eat gold. If you sold all of your Reichsmarks and bought gold before the Reichsmark collapsed, you still starved. On the other hand, if you waited a decade or two for things to stabilize and converted your gold into Deutsche Marks, the value of gold had rebounded considerably by then and you could have preserved a fair amount of your wealth.
Gold as a currency has the same problem that paper has as a currency. Gold and paper both have no actual value, and their only value is what everyone agrees its value is. At the end of the day you can still make gold into jewelry, but that’s the only value it has over paper. If the shit really hits the fan, you can’t eat jewelry (well I guess technically you can, but you won’t get much nutritional value from doing so).
Because it’s really hard to wipe your ass with a bar of gold.
Note that many European countries are reducing their gold reserves since they are just a waste of money in terms of storage and other fees. Meanwhile the main source of buyers has been China.
So perhaps there was extra buying from China for a while, it went up a bit, and now things have settled down there, it’s gone back down … for now.
" I hope someone shows up with the correct answer".
There is no “correct” answer. You may get answers from individuals that some regard as gold “experts”, but their opinions are “educated guesses” at best.
I did phrase that sentence humorously!
As expected in any thread about using gold as savings, we did get wrong answers. One might almost think that goldbugs are converting their gold into banknotes because, if this is the financial armageddon, banknotes can be used as toilet paper while gold cannot. 
I think what you are seeing is not “Gold Down” but “US dollar up”
Why people would view the US dollar as a reserve currency at this time is beyond me, but there you are.
Australia is a gold producer, and if I read the graphs right, gold is continuing to rise.
A few reasons I can think of.
- Huge selloffs in the market is forcing gold traders to liquify their position to cover margins.
- Low volume of gold related transactions in China, (which happens to be the largest market for gold) is creating market stagnation.
- Reduced demand for gold as industrial material due factories shutting down and/or transitioning to consumer goods related to the coronavirus is putting negative pressure on prices.
Paradox: When the U.S. stumbles the Dollar goes UP! Because the U.S. is so essential to world economy that when it stumbles, everyone else is in even bigger trouble.
Here’s charts for the US$ vs. other currencies for the past year:
Noticeably “spikier” in the last month. (Click on “1M” to get a closeup of that.)
So the US$ went down in Feb., then up, then back down mostly to ~its old value except for vs. the Pound.
While the price of gold in US$ in the last couple weeks looks sort of like the chart for vs. Euro, the %s are quite different plus there was no “down” in Feb. In Jan. and Feb. it was generally rising.
Gold does have an inherent value. It is the best material for coating small-current electrical contacts because (unlike silver) it is not corroded by polluted air.
True but humorous story (off-topic so I’ve enclosed it in a spoiler box):[SPOILER]In the mid 1970’s I worked for a company which saved money on its circuit boards by using silver contacts instead of gold. All went well for a few years, but failures began (especially in regions with air pollution as Bert Nobbins implies), were diagnosed as conductive silver-salt (or nitrate?) trails migrating across the board and shorting signals together. Management was gloomy: every system they’d ever shipped was a ticking time bomb!
One district in Germany was experiencing no failures. It turned out that the customer engineer there had taken it upon himself to swap out boards for spares at every preventative maintenance session, and took the swapped-out boards home, running them through his dishwasher!
I happened to be lingering in the corridor when this was brought to the V.P.'s attention. “Find out what brand of detergent that man is using,” V.P. responded without missing a beat.[/spoiler]
Dodgy stuff this silver. Can’t be trusted to stay where you put it.
https://reliatrace.com/silver-migration
But it’s worse than that, Jim. Silver reacts with hydrogen sulphide in the air (from diesel engines) and a non-conductive layer forms on the contact. It’s why silver teaspoons go black, and butlers have to keep polishing them. Our ancestors addressed this problem by using silver-gilt. https://en.wikipedia.org/wiki/Silver-gilt
At least one electronics company has gone bust when all their silver-contact switches stopped working
As someone said up-thread, the demand for gold for making electronics must be well down in China.
That must be a tiny amount of gold used for that purpose.
Depending on who you ask, 200-300 tons per year.
OK, that’s more than I thought.
Has anyone tracked gold prices per past epidemics? What are the historical responses? [/me too lazy too look it up]