Has gold lost its ability to be a safe haven?

Huh? What’s happening? Even as risks to the international financial system mount, prices of gold, typically viewed as a safe haven, have fallen.

International prices of the yellow metal have declined to $1,548 per troy ounce, practically erasing its 2012 gains and a far cry from the the record high of $1,920 an ounce achieved in September last year. This, even as concerns mount among international investors about the future of the eurozone and the almost inevitable exit of indebted Greece from the 17-nation common currency union.

[caption id=“attachment_311037” align=“alignleft” width=“380” caption=“For now, the US dollar has upstaged gold as a safe haven. Reuters”]  [/caption]

Investors are dumping gold along with other risk-sensitive assets like stocks and commodities, leading some commentators to point out that the metal is currently trading like a risk asset rather than a safe haven. “It’s like everybody’s forgetting what gold actually is-a hedge against uncertainty and fiat money,” Bob Haberkorn, senior commodities broker at RJO Futures, told Wall Street Journal.

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For now, the US dollar has upstaged gold as a safe haven; the greenback has strengthened much to the chagrin of other currencies, including India’s rupee, which have been pummelled as investors dump riskier assets and seek safety in the currently one and only ‘safe haven’.

That’s in contrast to what happened in 2011, when a deepening eurozone crisis and sluggish US economy prompted a flight to gold, sending prices of the precious metal to all-time highs. In fact, 2011 sealed gold’s 11th straight year of gains. However, in 2012, even as the eurozone crisis rumbles on, investors are shying away from making any more ‘safe haven’ investments in gold.

At least in Asia though, lower gold prices are reviving some physical demand for the metal. A gold trader in Singapore told Reuters that lower prices were attracting demand from “India, Thailand and Indonesia.”

“Sales are going on as prices are down. We would see further buying if prices come down to Rs 27,000,” Haresh Acharya, head of the bullion desk of Parker Bullion, told the news agency. However, the decline in gold prices could soon be offset by the rupee’s precipitous depreciation. On Wednesday, the rupee breached its all time low of 54.30 against the dollar. A fall in the rupee’s value will raise the price of imports in local currency, even if global prices have cooled.

So, is the 11-year bull run over for gold? Expert views, as usual, are mixed. Morgan Stanley, for one, remains a gold bug and continues to believe that prices can climb higher in coming weeks. It also thinks the recent sell-off is “ consistent with distressed selling and long liquidation", according to a Barron’s blog post_._

Maybe, but there’s no denying that for now, the safe haven role of the precious metal has definitely been eroded.