There is an old financial market axiom: "reverse the trend over a long weekend." Basically, as traders take a break from markets, they can sometimes square up their positions and come back to work with a clean trading sheet and often a fresh eye. In other words, it provides a useful safety valve so that investments that have become stale are despatched with little emotion, and the dealer can reappraise where the best opportunities lie.
The sort of extended holiday that many of us enjoyed over the past month or two is normally a particularly strong example of this phenomenon, with trading conditions quiet and market moves minimal at best.
So while last month the talk was of unending quantitative easing, the threat of sovereign debt default contagion in Europe and the lack of faith in governments, the focus has shifted this month, and with it a rather more positive view of events. Whether this survives the harsh reality of market moves has yet to be seen, but currently the attention is on rising interest rates in Asia, positive reaction to the bond auctions of some peripheral European countries, and the move to expand the scope and capacity of the European Financial Stabilisation Fund.
This bout of optimism has prompted some to question the need for retaining an investment in gold, as they would argue that much of the rationale for their original transaction has disappeared.
Depression and hyper-inflation have been avoided, central banks are moving to take control of economies again and the threat of sovereign default, and perhaps most dramatically, even the disappearance of the euro, are no longer considered possible. Hence gold's retreat from its recent all-time highs.
However, this reappraisal of gold's value has been confined to those players who are nimble enough to take advantage of rapid changes in markets, rather than those who are seeking to make a longer-term allocation to the precious metal as part of portfolio diversification.
For the latter group, a break from work would not be considered sufficient to simply switch away from gold. Instead, the investment is considered against multi-year factors. Additionally, gold's attractiveness within a range of investments and its qualities as a hedge against financial dislocation are not in doubt.
Nonetheless, with short-term issues in the ascendant, this could result in gold underperforming in the next few weeks as the market switches from nearby concerns to a longer-term outlook and reduces its exposure. To an extent, this is already happening, with gold struggling against both the US dollar and the euro in the first few days of this year.
But this has been a gradual retracement, and any liquidation from short-term interests has been masked by good physical demand out of Asia, where stocking up is taking place throughout the region in advance of the lunar new year celebrations.
So after plumbing, at the time, 19-year lows in 1999 when gold struggled to stay above US$250, is the story now all over? Has it had its time back in the sun and is it now ready to retreat back to relative obscurity? I have been somewhat strident in my views that the rationale behind the 10-year rally in gold prices was a function of a general unease over the state of financial markets, concern that monetary authorities were merely reacting to events in the global economy rather than controlling them, and a feeling that the wholesale retreat from gold as an acceptable asset, during the 1990s, was overdone.
Even if this bout of optimism for markets persists this year, it is the realisation that gold has been a financial asset for thousands of years that will persist - and that the 1980s and 1990s were the aberration.
Hence, investors will continue to accumulate gold. In such a small market as that for precious metals, even small reallocations of funds can have significant impacts. All the gold that has been mined in world history still constitutes less than 5 per cent of global wealth.
Therefore, despite my concerns over the immediate direction of gold prices, I continue to believe that much of the same rationale that has been driving prices will persist. While some of the motivation behind gold investments may shift over the coming 12 months, the overall result will continue to be much the same, with prices rising still further.
*Jonathan Spall is the director of commodities distribution at Barclays Capital in London, and the author of How to Profit in Gold
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