GOLD : Safe haven ?

 For some investors, gold provides a safe haven in an environment where tremendous uncertainty is plaguing the outlook for many asset classes.  For others, fears that the current path of monetary and fiscal policy is a prelude to broad-based fiat currency devaluation and inflation — which would erode the wealth of all assets — is reason enough to buy and hold gold.  Increased protectionism is also likely to lift inflation by reversing some of the enormous gains from trade seen over the past decade.

In the Developed world corporate default risk has increased markedly since mid-2008, the risk of government default has also accelerated, particularly in recent weeks, prompting investors to question the ‘safety’ of government debt.  Increased government spending together with falling tax revenues are leaving government balance sheets nearly as unattractive as those of corporates and consumers.  This growing risk of default has been matched with increased gold demand.  

In Emerging economies, while debt default has been an issue, so have concerns surrounding economic growth, which have resulted in capital flight and an exodus to the US dollar.  With currencies depreciating, and capital markets often not convertible, investors here too have been rotating towards the safety of gold.