Gold has eased back after reaching a record high this week at $1250 an ounce. But we can expect the price will keep rising because investors are fleeing for the safety of the metal. Blame it on market volatility.
As Adam Shell writes in USA Today, investing in markets now is not the fainthearted. It's now driven by big swings from fear to greed back to fear again.
The scary part is it's getting worse. Morgan Stanley's Asia chairman Stephen Roach tells Bloomberg's Tom Keene, the economic crises are now coming faster than ever before. "Over the last 25 years we had an average of one crisis every three years. The gap this time is 18 months,'' Roach says. "The scale is bigger. And we [now] have product contagion from subprime to mortgage-backed securities, back to cross-border contagion within the euro zone. This interplay between cross-border and cross-product contagion is very difficult to unravel."
So the volatility is getting worse, and that's going to keep driving up the price of gold. As the Citizen Economists blog says, investors know that their assets are neither safe nor liquid but greed to speculate is keeping them in there. "As the true state of the worldwide financial markets and their fake liquidity increasingly permeates the zeitgeist more and more individuals will simply withdraw their capital and store it is the monetary metals. "
If Roach is right and the gap between crises is shrinking, we can expect gold to go through the roof.
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