When gold can no longer serve as a safe haven, which assets can still provide safety?

Black Friday is followed by Black Monday, as global commodities further plummet in the Asian session. Spot gold temporarily dropped 10% intraday, while spot silver fell over 16%. Panic sentiment is spreading across markets, including Asian stocks like the A-shares and Korea’s KOSPI, which are all in the red.

When the source of risk comes from gold, which assets have become “safe havens” in this market reshuffle?

• US dollar and US Treasuries: Since the “de-dollarization” began in April last year, precious metals have been one of the important alternatives for overseas investors to reduce dollar assets. However, the recent sharp decline in precious metals has temporarily reversed this trend, with investors turning back to buy dollars and US Treasuries. The dollar index rebounded over 100 points from Friday’s lows to above 97.1, US Treasury yields declined across the board, with the 1Y SOFR dropping 5 basis points to 3.44%, and the 10Y US Treasury yield also falling back to around 4.21%.

• Renminbi exchange rate: Despite the overnight surge of 100 points in the US dollar index, the midpoint rate yesterday only slightly increased by 17 pips. The onshore RMB remained stable, not breaking above 6.9550, and the RMB index rebounded sharply, truly moving in tandem with the dollar, reflecting a G2 market trend.

The former safe-haven currencies—Japanese Yen and Swiss Franc—have quietly sunk during this plunge.

• Due to Switzerland’s gold processing and export capabilities, the CHF exchange rate trend (right axis, inverted) has recently become more correlated with gold prices. Last week, EURCHF broke below 0.92, hitting the lowest level since the Swiss franc decoupled from the euro in 2015. When gold prices plummeted, the Swiss franc, which should exhibit safe-haven properties, was dragged down by gold, preventing EURCHF from falling further.

• The Yen’s weakness needs no further explanation. According to a Asahi Shimbun poll, the ruling coalition led by Sanae Takaichi is expected to win over 300 seats in the House of Representatives (out of 465). If no major surprises occur in the election results, Takaichi’s subsequent fiscal stimulus plans are likely to proceed more smoothly, laying the foundation for the Yen’s long-term depreciation. As a result, the JPY has almost been weakening in sync with the dollar over the past two days, and the AUDJPY risk sentiment indicator has also lost its effectiveness.

In summary, my takeaway from this round is: first, reduce leverage; second, there are no forever safe assets—only forever diversified allocations…

This article is from: Good Morning Market

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