Investors shift to gold as market drops

Investors are using gold as a safe haven in the aftermath of the Japanese earthquake.

They are swinging away from dollars and other currencies into hard assets in the face of global political and financial uncertainty,.

The huge reconstruction effort will enhance gold’s appeal as a hedge against inflation, since much of Japan’s infrastructure was destroyed by the disaster.

Gold prices moved up amid rising uncertainty about the impact of Japan’s earthquake and tsunami on the domestic and global economy.

Enormous demand from Japan for raw materials will drive up commodity prices and increase inflationary pressure.

A lot of excess liquidity is being pumped into markets that will encourage a shift to gold as a safe haven.

Stocks

The Bank of Japan poured a record 15 trillion yen ($183 billion) into the world’s third  biggest economy as the earthquake triggered a plunge in stocks and surge in credit risk.

The central bank also doubled the size of its asset-purchase programme to help shield the economy from the effects of the quake.

Traders believe gold will gain strength as more money flowing into the market will prompt investors to purchase gold as an alternative investment in order to protect their wealth.

The earthquake in Japan will lead to a major decline in crude oil consumptio, affecting the supply and demand in international oil markets.

Japan is the world’s third largest consumer of crude oil. It is also the fourth largest oil-refining country. At least five oil refineries, representing a quarter of Japan’s total refining capacity, have been closed.