Gold has fared exceptionally well over the past couple of months, as investors were attracted to the metal’s perceived safe-haven qualities.
 
However, gold’s shine seemed to fade away recently, as the collapse of MF Global recently reminded investors that liquidity is king in this environment. Tighter regulatory controls in the financial services sector coupled with growing pessimism over the eurozone and talk of a possible hard landing in China have encouraged institutional investors to increase their liquidity buffers. Thus, the need for liquidity has motivated investors to decrease their exposure to gold, and other precious metals. Spot gold traded at $1590 an ounce on Thursday morning, representing a 6.9% decline on the week. That compares with an 8.2% decline in spot silver, an 8.06% drop in palladium and 5.8% fall in platinum.
 
On Wednesday gold fell below the 200-day moving average for the first time in almost three years, suggesting that more declines may be in store. However, UBS believe the metal remains one of the top commodity picks for 2012, arguing that ‘most of the factors that pushed gold higher in 2011 are not going away...so long as uncertainty abounds, gold has a fighting chance of outpacing many asset classes.’ UBS expects gold to average at $2050 an ounce in 2012. I am of the opinion that gold will rebound in the short term, but failing to break the 200-day moving average of $1630 an ounce would be a very bearish sign. It would suggest that the downtrend will reassert itself. After all it has not been unusual for gold to sell off sharply in previous recessions.