Gold: Panic will liquidate gold positions – ABN Amro
|Until recently gold prices had been rising in tandem with equities and the US dollar, but this week the sell-off in equities has weighed on both the US dollar and gold prices. This positive relationship is quite unusual, according to Georgette Boele from ABN Amro.
Key quotes
“Gold prices have the tendency to weaken when the dollar rises and/or if equity markets rise. This is because gold is non-yielding, i.e. interest on the dollar and dividends from stocks are more attractive than the zero-income alternative of gold.”
“The dynamics changed in 2019. Expectations of rate cuts by the Fed and negative yields in the eurozone, Switzerland and Japan have supported gold prices. Not from a safe haven point of view, but because at least gold does not charge a penalty.”
“Gold rallied with stocks because at the time it was a risk-on investment. For around 6 months now gold is a crowded trade. Investor positions are around 80% of the annual supply and could come to market at any time when investors change their minds.”
“As sentiment has deteriorated, investors have closed some of their open positions in currencies, but most likely also in gold. Therefore, gold prices have failed to make new highs now that equity markets have aggressively sold off. If risk aversion were to result in a market panic, investors will find cash and very liquid assets attractive. They will probably liquidate gold investment positions.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.