What a difference a week can make. While sentiments may turn on a dime, fundamentals pave a much steadier road.
Seven days ago, a chorus of voices touting the end of the road for the bull market in gold echoed across the airwaves and filled the blogosphere. The U.S. dollar was exhibiting surprising strength, while gold traded at the worst levels of the year. Shares of gold miners were being treated, frankly, like toxic financial stocks.
Then along came the biggest financial story of the past 50 years, and the gold bull resumed just as abruptly as this past March's correction had interrupted it. Yesterday's $90 move in gold futures was the precious metal's biggest single-day jump in modern history, crushing the prior record $63 move from January 1980. With October futures touching as high as $922 today, compared to Wednesday's open of $774.80, the metal has forged an extraordinary $147.20 trading range over the past two days.
The most obvious explanation for this flight to the safe-haven metal seems to be nervousness within the global financial system. Credit markets remain effectively dysfunctional, and the multi-trillion-dollar derivatives market appears set to continue de-leveraging. While I think this is part of the equation, some other recent developments also warrant Foolish consideration.
For one thing, the U.S. dollar index reversed convincingly, as the Federal Reserve tossed more than $500 billion dollars at this crisis in the last week alone. That sum equals more than one-fifth of last year's entire national budget of $2.73 trillion. Yields on Treasury bonds dipped dramatically amid high demand Wednesday, which also may have enhanced gold's appeal. Finally, I took notice last week when one of China's biggest investment banks indicated a desire to diversify its reserve currency holdings away from the U.S. dollar.
Alongside double-digit percentage moves in bullion proxies like the SPDR Gold Shares ETF (NYSE: GLD ) and gold and silver holder Central Fund of Canada (AMEX: CEF ) , the gold miners broke out in convincing fashion as well. Agnico-Eagle Mines (NYSE: AEM ) has surged 30% in the last five days, with smaller gains from competitors Goldcorp (NYSE: GG ) and Newmont Mining (NYSE: NEM ) . Stay tuned, Fools. I firmly believe there's a lot more shine yet to come from gold.