An unusually demonstrative full-banner headline in this morning’s Financial Times says it all: Fear grips global markets as faith in interventions runs out …… Ignoring all else, the relentless selling of paper gold drove prices below the $1500 mark overnight to $1472 – down $27 from yesterday’s close.  Silver is down another 32¢ at $11.96.

To a large extent, gold’s performance over the past ten days is a reflection of the deflationary scare roiling financial markets.  As we mentioned in this report on Tuesday, the gloomy situation in financial markets and the global economy offers reasons to buy gold not sell it. The paper selling, however, continues unabated even as the premium on physical metal begins to climb and coins and bullion worldwide disappear into private hoards.

“Volatility remains the dominant scenario on markets with gold proving no exception,” says Carlo Alberto De Casa, chief analyst at ActivTrades, in a report published at Bloomberg. “We are seeing a positive (direct) correlation between stock markets and gold, which should not be a big surprise as every time there is a sharp market fall, many traders are using gold as their cash machine in order to keep other positions open that are being hit by margin calls.”

Chart of the Day

Chart note: Since the turn of the new century, gold has consistently provided a real rate of return on investment when measured against inflation. In fact, it provided a real rate of return in thirteen of the nineteen years represented on the chart. That performance reinforces the metal’s historic reputation as the ultimate long-term store of value and protector of wealth.

by Michael J Kosares