Gold remains the safe haven of choice

Dead cat bounce?

A messy start to the week in markets is being given a temporary break on Tuesday, something that may just be a dead cat bounce at an otherwise nervy time.

The announcement of increased tariffs between the US and China has clearly shaken investors and once again we’re already talking about the next round. We’ve gone full circle from a deal to being a matter of time from being done to the prospect of full tariffs between the world’s two largest economies. The global economy was already vulnerable and investors had gradually come back on board but this is not a good development and the Fed is going to be reluctant to save the day, as we’ve already seen.

If we get full tariffs on China, the question then becomes where Trump targets next. If his ratings don’t suffer and even improve, does he turn his attention to Europe? Or anywhere else, for that matter. Next month’s G20 has suddenly become the event of the year so far and the only thing that may be stopping markets plummeting more is the belief that an agreement will be reached there. I’m not so sure.

Another FOMO rally in bitcoin?

Bitcoin is enjoying another good day, trading back above $8,000 and increasing its gains since Saturday to more than 25%. There’s been no shortage of explanations for the recent spike, some more ludicrous than others and none that are nearly significant enough to match the size of the leap we’ve seen. The only thing that’s clear is that cryptos may be maturing in many ways but price action hasn’t changed.

Until it does, I struggle to see institutional investors wanting to get too involved. These big gain days look great and people are always attracted to the prospect of big gains but last year showed us what the flip side of that looks like and it’s ugly. The Fidelity story is obviously interesting but this would be some delayed reaction. Bitcoin has rallied plenty in the past because of FOMO, this doesn’t look any different.

Gold remains the safe haven of choice

It took some time and there was some clear feet dragging but eventually gold reacted as you’d expect to yesterday’s stock market sell-off and overall risk aversion, reasserting its position as a traditional safe haven (the notion that it’s being replaced by bitcoin really is ridiculous). A battle around $1,290 was fierce at one stage but once it became clear that US investors were not about to buy the dip at the open, gold took off.

The rally took us just above $1,300 where we’ve now seen some profit taking. This is just shy of 50% of the decline from this year’s high in February to the lows in April which makes roughly the $1,300-$1,320 area very interesting indeed. A rotation around here would suggest the momentum remains with the bears, while a break above could be a good bullish signal.