The dangers of a more liquid gold market

With other safe haven assets looking increasingly risky, investors are turning to gold in unprecedented numbers – but a more liquid market may turn out to have pitfalls in the long term. By Alexander Campbell

To the alchemists, gold was the perfect metal – untarnished by time and impervious to fire and calamity. And while alchemy has been forgotten, gold is still showing many of the qualities the adepts admired: continuing to rise even as equity markets crashed and money markets floundered, the spot price of gold has now reached unprecedented highs, hitting $1,246.05 an ounce on June 25 (see figure 1).

Other asset classes remain volatile. Although the markets have calmed substantially since the peak