Gold and Silver jumped this morning after China surprised investors by cutting the reserve requirement ratio for its commercial lenders for the first time in years. This move will ease the country’s credit strains and shore up their economy.
Gold latched on to this news as gold futures are up $18.40 at $1,731.80.
“In the last couple of weeks gold has been behaving like a risky asset, and equities and commodities are up after China’s move,” said Commerzbank analyst Daniel Briesemann.
“We have seen that phenomenon since the last big gold price drop in September; there has been a very high correlation between equities and gold.”
Precious metals such as gold tend to do well during periods of uncertainty, but over the past year there has where ever equities move gold tends to follow.
Gold’s gains could be short lived though as the crisis in Europe continues. It’s now been two years since the sovereign debt crisis started in Europe and investors are leaving the European bond markets in droves. Many economists believe the euro zone has a matter of days to fix this crisis before a break up is inevitable.
“Europe is still looking like it’s probably heading for a recession next year, and that issue is not going away. Politicians are dancing around the edges of the problem, rather than getting to the meat of it,” said David Wilson, director of metals research and strategy at Citi.
Silver futures are also up this morning, rising nearly 1% to $32.15.