The article makes a useful point about how gold actually behaves during geopolitical events.
Gold doesn’t really react to conflict itself, but to how that conflict affects things like interest rates and the dollar.
In this case, the shock is coming mainly through energy prices. That’s pushing inflation expectations higher and making rate cuts less likely. As a result, real yields are rising, which makes holding gold less attractive since it doesn’t generate income.
At the same time, energy-driven shocks often strengthen the dollar, since global commodities are priced in USD. A stronger dollar usually puts additional pressure on gold prices.
So this looks less like gold “failing” as a safe haven, and more like a different type of macro environment, one where inflation and interest rates matter more than fear alone.
big-papito on
1. Gold got a little hot and people are taking profits during the times of uncertainty
2. Petro-dollar going stronger depresses gold
3. The prospect of interest rate hikes makes bonds more attractive as gold is non-yielding
That said, gold clearly wants to break out after all this Iran bullshit settles down, because inflation OR stagflation is coming.
CopiousCool on
The obvious plays in Oil or whatever market Trump is influencing are becoming too tempting to ignore, especially if the cap on gold and other investments is either near or miniscule compared to the potential profits on the up and downside of the new trend
3 Comments
The article makes a useful point about how gold actually behaves during geopolitical events.
Gold doesn’t really react to conflict itself, but to how that conflict affects things like interest rates and the dollar.
In this case, the shock is coming mainly through energy prices. That’s pushing inflation expectations higher and making rate cuts less likely. As a result, real yields are rising, which makes holding gold less attractive since it doesn’t generate income.
At the same time, energy-driven shocks often strengthen the dollar, since global commodities are priced in USD. A stronger dollar usually puts additional pressure on gold prices.
So this looks less like gold “failing” as a safe haven, and more like a different type of macro environment, one where inflation and interest rates matter more than fear alone.
1. Gold got a little hot and people are taking profits during the times of uncertainty
2. Petro-dollar going stronger depresses gold
3. The prospect of interest rate hikes makes bonds more attractive as gold is non-yielding
That said, gold clearly wants to break out after all this Iran bullshit settles down, because inflation OR stagflation is coming.
The obvious plays in Oil or whatever market Trump is influencing are becoming too tempting to ignore, especially if the cap on gold and other investments is either near or miniscule compared to the potential profits on the up and downside of the new trend