Gold is not a safe haven, it’s a hedge from fiat currency. Portfolio allocation needs to match your personal risk-spectrum. A common misconception is that people look to gold in times of uncertainty. Gold is not a safe haven, it’s a hedge from fiat currency. A good example is comparing the price of gold to the S&P500 in 2008.
Theoretically if gold was an anti-risk asset and the SP500 rises (risk-on), then the price would fall. Why? There was concern in the market that Q.E. and the expectation or rate cuts would cause inflation. It didn’t and gold rallied.
Furthermore, gold has one of the worst trading sessions in a few months, which was in the peak of bullish volatility for the DXY and equities. In 2019, the dollar had a rally even though there were various Fed rate cuts. Yet now, the DXY is falling against the Euro,Yen and CHF. This has to do with the interest rate differential between rates attached to the U.S. dollar and the Euro.
As you may know, the Fed has no room to lower rates at this point. Future contracts are set for a 100% chance of a hike for the next Fed meeting. My personal opinion (comparing the 3 month-10year bond yield curves) that this will be the beginning of the true deleveraging of the American Economy, right around June or July.
There is greater downside adjustment for the USD rather than the the Euro, Swissy, Yen. But if you look at NZD/USD and AUD/USD, there is clear room to cut .These are both reliant on external demand vs. the internal consumption dynamic from the USD. What will happen in the coming months is a hike in interest rates, forced inflation, same huge spreads, a housing collapse, and stagflation followed by deleveraging. Maybe Jun through August.
If we can get an interest rate adjustment from the Reserve Bank of New Zealand and the Royal Bank of Australia which will flatten the interest rate differential.
However, against the Euro, Yen, and Frank, the Dollar will fall as there is more downside adjustment comparatively.
The 50 bp cut from the Fed (the only time in history that it happened since Lehman brother) was negative which was interesting. Prior, officials stood by a “material change” to the outlook on growth. I think this proves that the Fed recognized in a fearful way—acting bold rather than sticking to their usual “wait and see” approach.
Theoretically if gold was an anti-risk asset and the SP500 rises (risk-on), then the price would fall. Why? There was concern in the market that Q.E. and the expectation or rate cuts would cause inflation. It didn’t and gold rallied.
Furthermore, gold has one of the worst trading sessions in a few months, which was in the peak of bullish volatility for the DXY and equities. In 2019, the dollar had a rally even though there were various Fed rate cuts. Yet now, the DXY is falling against the Euro,Yen and CHF. This has to do with the interest rate differential between rates attached to the U.S. dollar and the Euro.
As you may know, the Fed has no room to lower rates at this point. Future contracts are set for a 100% chance of a hike for the next Fed meeting. My personal opinion (comparing the 3 month-10year bond yield curves) that this will be the beginning of the true deleveraging of the American Economy, right around June or July.
There is greater downside adjustment for the USD rather than the the Euro, Swissy, Yen. But if you look at NZD/USD and AUD/USD, there is clear room to cut .These are both reliant on external demand vs. the internal consumption dynamic from the USD. What will happen in the coming months is a hike in interest rates, forced inflation, same huge spreads, a housing collapse, and stagflation followed by deleveraging. Maybe Jun through August.
If we can get an interest rate adjustment from the Reserve Bank of New Zealand and the Royal Bank of Australia which will flatten the interest rate differential.
However, against the Euro, Yen, and Frank, the Dollar will fall as there is more downside adjustment comparatively.
The 50 bp cut from the Fed (the only time in history that it happened since Lehman brother) was negative which was interesting. Prior, officials stood by a “material change” to the outlook on growth. I think this proves that the Fed recognized in a fearful way—acting bold rather than sticking to their usual “wait and see” approach.
