Gold Poised Toward Record Highs on Increasing Risk Aversion

The week ahead offers plenty of opportunities to reinforce this theme, beginning with the G20 summit taking place over the weekend in Toronto. Despite jawboning on the sidelines of Friday’s preliminary G8 meeting, it seems unlikely that top economies will be able to strike a united front as the US argues for continued expansionary policy to secure the recovery while Europe lurches toward austerity to calm jittery bond markets rattled by the sovereign credit meltdown on the region’s southern periphery. This lack of consensus in the developed world is likely to capture particular attention after China ably deflected the issue of Yuan revaluation with a vague pledge to abandon its currency peg early last week. Further, a busy US economic calendar promises to reinforce the bleak mood as the bellwether of global growth continues to falter, with consumer confidence set to decline for the first time in four months while manufacturing activity slows again and the all-important Nonfarm Payrolls figures show the economy shed 110,000 jobs in June – the first negative reading since December 2009.

All this translates into formidable headwinds facing risk appetite and putting downward pressure on stock prices, a landscape that promises to propel gold prices higher. Indeed, 20-day percent change correlation studies reveal an increasingly strong inverse relationship between the metal’s spot price and the MSCI World Stock Index, an average gauge of global equities’ performance.