Despite expectations that gold was headed higher, this weeks sell off in the precious metal is another indication of how economic challenges elsewhere in the world end up affecting investors everywhere. Typically during challenging times precious metals are often seen as a store of value. This simply means that when assets such as stocks, bonds or currencies are unattractive from a risk/reward perspective, investors and money managers migrate over to the shiny metal to hedge against market risk.
Both U.S. and Canadian stocks continued to trade sideways this week despite the initial concerns over the Cyprus bailout. While the news initially sent the S&P in a downward spiral , all of our near term technical support levels have held up. My initial consideration for the reversal off of the lows early in the week was the consideration that the FED’s were speaking on Wednesday. I thought that traders and investors were waiting to see if they would make any adjustments to their policy in light of the proposed 10 billion dollar bail out as a response to the “crisis of confidence”. It is evident now that the FED’s continue to stay the course, and that the bail out is dependent upon Cyrpus coming up with $5.8 billion by Monday. This after the first deal was rejected. To add fuel to the fire, Cyprus’ Finance Minister Michael Sarris has failed to win the support of the Russia in the pursuit of a new financing package...so uncertainty continues to reign supreme.