Safe-Havens: Not As Safe As We Thought

Ok… someone has to say it: what a Tuesday! For those who think Monday is the worst day of the week… well, don’t be so sure, seems like Tuesday is just Monday 2.0.

Let’s see what happened in the US stock market:

The Dow Jones Industrial Average settled 0.78 percent to the downside at 24,706.41 points, breaking an eight-session streak of gains as it sank nearly 200 points.

Luck was no different for the other two. The S&P 500 closed at 2,711.25 points, with a 0.68 percent loss on its back. The tech-heavy Nasdaq composite eased 0.81 percent to 7,351.63.

And so… yesterday was not a great day for stock markets in the US, as the numbers above clearly exposed. But neither was a positive session for safe-haven gold.

In fact, futures of the yellow metal for June delivery in the Comex division of the New York Mercantile Exchange dropped more than 2 percent, marking its worst decline since December 2016 to establish at the lowest level since the end of the previous year.

Wait a minute. Gold is a safe-haven asset. Isn’t it? Yeap. And safe-haven assets tend to benefit from negative performance in the stock market, right? Exactly. So what the hell happened on Tuesday?... Finally a good question.

Despite the negative correlation between safe-haven assets and risky assets, we shouldn’t forget that the metal is denominated in US dollars. And the greenback has been doing pretty well in the last couple of sessions.

Only Tuesday, the currency was up about 0.73 percent against six major rivals. For that reason, a stronger greenback is weighing on the safe-haven demand, reducing gold’s appeal for investors holding foreign currencies.

Fine… Is that all? Nope. Let’s don’t forget about our beloved 10-year Treasury yields, which added 2.33 percent to hit an intraday peak of 3.093%, the highest since March 1, 2018.

So… gold and bonds weren’t a good place to hide for investors. Stocks… not an option. Where to run then? The dollar, of course. Cash is going up and that’s the place to be.

FortFS