Something strange – or, if not strange, then counterintuitive – is happening to gold futures in the last twenty-four hours. They’ve gone down, and not up, in response to an escalating war in the Middle East.
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All in all, it appears there’s too much risk right now to make even the most risk-averse safe haven asset of them all, gold itself, continue its ascendancy. Perhaps that’s because a war premium has long been priced in; perhaps it’s because a firmer USD has taken some life out of gold.
Take a look at the five-day gold chart for context:
Those theories make sense on their own – personally, I would assume it’s to do with a stronger U.S. dollar – but then you’ve got the fact that silver is diving too. Okay, no matter: Silver’s climb is fairly irrational anyway, and it clearly (largely) tracks the gold price on a sentiment basis.
But then you’ve gone another momentum trade plummeting on Wednesday, and this one is more left-of-field: it’s the South Korean KOSPI index, which for all intents and purposes can be called “South Korea’s stock market.”
That too has been a momentum trade in recent history. And it, too, is down Wednesday. In fact, it lost -7% out the gate on Wednesday; over the last 5 days, it’s down -11%.
(Author’s Note: in fact, by 3pm AEDT, it had sunk as much as -11% intraday.)
Looking elsewhere, we can see the same pattern. The NIKKEI, which has been going through its own ‘Trump Trade’ of late following its election of a new conservative (pro-Trump) leader, has also unwound in the last five days.
Conversely, what has been able to regain ground is the price of an alternative safe haven asset – if you choose to view it that way – Bitcoin, which, after a slump, has managed to see some revival on this Middle Eastern war business.
If crypto is a safe bet in war while every other more-sensible asset and index is losing its head, well, make of that what you will.
Anyway, to get back to the headline – gold is likely falling due to a stronger USD and stronger U.S. Treasury yields, even though those yields are technically a bad thing, because it means that Treasuries are being sold off and those higher yields are meant to attract buyers in.
U.S. Treasuries are being sold off because nobody is sure how the long-term strength of the American economy will go, and thus the yield rises to bring buyers back to the tantalising prospects of higher long-term gains. This matters more for the very rich and other banks more than it does retail investors.
But the very rich and banks know the value of those high yields when they see them, and for now, America isn’t close to any kind of dramatic collapse.
And so while this war situation plays out, the boring safety of bonds and USD once again shows its irreplaceable desire.
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