Gold is a hedge against inflation, it is said. Is it also a safe asset class when  equity markets panic for reasons more extraneous than economic. The equity markets  melt down across the world  presently is directly linked to the downgrading of the US from its AAA rating by S & P. Down grading  especially of a large economy the US,affects investor’s confidence and sentiments across the world.

But the reasons for downgrading itself seem to score political points than due to the worsening ill health of the economy.The Republicans are taking advantage of the moments to bring down the ratings of Barack Obama through their large presence in the US Congress, disregarding the economic consequences for the US  and the world. And they have done it. A sick deal that is not going to heal the downturn in the economy.

Downgrading US from AAA after nearly  after a century is expected to shock the markets. And the markets  have reacted. Equities across the world  went down in the past few sessions and gold , up, up and up. That’s troublesome for gold !

Goldman Sachs has raised its 12 month forecast from $ 1707 per ounce to 1880. That’s 10% increase. Ong Yi Ling of Phillip Futures has raised the price target for gold in 2011 to 1880 an ounce. In these few  panic session gold has moved upto $1780.

We have still nearly 5 months to go  for 2011 and gold is just 6% below $1880, widely predicted level. Panic shifting from equities  to gold has pulled up the price sharply. Safety is a mirage here.

Politics will correct politics. Eventually the politicians in the US and the Europe will shave of the excesses leading to debt crisis and the problems will seem solvable. Confidence in business will come back.Equities will look attractive. Money will shift from gold. Gold will see soon a correction of  15% to 20% from the present level to ride through $1880. Spot the bubble in Gold. All that glitters is not gold !