Gold at $4K – Be afraid, be very afraid
Markets are wrestling with political drama in Japan, France and the U.S., pushing safe-haven of choice, gold, past $4,000 per ounce to yet another record high, as investors use the metal as a hedge against a plethora of worries.
To say spot gold has been on a tear would be an understatement – the eye-watering 50% gain so far this year is on top of a 27% surge in 2024 and a 13% rise in 2023.
Still, investors’ appetite for all things gold remains insatiable. Inflows into gold ETFs globally hit $64 billion year-to-date, according to data from the World Gold Council, with a record $17.3 billion in September alone.
The broad expectation of the Federal Reserve cutting rates in the near term, worries over geopolitical and economic uncertainties along with fears of a looming AI bubble have all been cited as reasons for gold to become the favoured hedge.
It probably means that there is still room for more gains, and that is a sign of worry. Beyond commodities, investors are enraptured by what comes next in the French political world where President Emmanuel Macron faces growing pressure to resign or hold a snap parliamentary election. France was engulfed in further political chaos earlier this week after its fifth prime minister in less than two years resigned. Markets have taken fright, with the risk premium on French government bond yields near a nine-month high.
The euro has been under pressure and that has provided some respite to the dollar even as the U.S. shutdown enters its eighth day.
The Japanese yen slipped further, taking its losses to over 3% in just three sessions. The yen is back where it was in mid-February, hovering around the 152.50 per dollar level as whisper-it-quietly intervention risks emerge.
The market reaction to fiscal dove Sanae Takaichi‘s victory has been explosive, as the yen crumbled, the Nikkei rocketed to record highs and long-end bond yields surged on fiscal health worries and on receding bets of another rate hike this year.
And yet, there has been very little to take cues from what the fiscal policy path will look like in the near term. Her stance has been relatively softer than last year and investors are hoping that the next rate hike will be delayed but not denied.
Key developments that could influence markets on Wednesday:
Economic events: German industrial data for August