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The S&P 500 posted a record high Wednesday at +37.10, or 1.1% at 3334.69
The reverse side of market optimism was the correction of safe-havens such as JPY and Gold.
The JPY declined against the Buck, lead USDJPY to its highs in a 1. wks near 109.50, showing a rebound from the 200-Day SMA.
Gold dropped 2.6% on Monday and Tuesday from 6-yr highs above 1590. However, so far, Gold receives support at 1550, which was the area of last year’s highs. As is often the case in the markets, the former resistance became the support.
Wednesday, Gold futures settled 7.30 higher (+0.5%) at 1,562.80oz, recouping some of yesterday’s losses which saw the precious Yellow metal fall to 3-wk lows.
Still, behind Gold’s growth is more than a momentary demand for safe-havens in fear of a virus in China.
In May last year, precious Yellow metal prices grew mainly due to the easing of the monetary policy of major global central banks. Lower interest rates, resuming of asset purchases on central banks’ balance sheets, all these measures eventually spur inflation.
The acceleration of price growth has become increasingly evident since the middle of last year, which against the backdrop of close to Zero rates makes investors look for alternatives to bonds as a way to protect portfolios from inflation.
This situation also explains the record volumes of assets at gold-related ETFs. The inflow intensified at the end of the last year, along with the sharpest growth phase of stock markets. This contradicts the idea that the demand for safety drives Gold.
Key central banks are building up gold reserves. Behind these steps is the desire to diversify reserves on concerns over the increased debt burdens of the US, Japan, and many Eurozone countries.
The Big Q of what will happen to accumulated debt is now on the agenda. And the 1st thing that comes to mind is that the most straightforward way to reduce debt burden will be to push down the value of their currency.
This is called competitive devaluation, in the form of soft monetary policy.
A side effect of this strategy is seen as the rise in prices of assets, primarily gold as an insurance against inflation.
Other commodities, including Crude Oil, also tend to grow in such conditions, but mostly in response to the economy acceleration and demand growth.
The Gold price rose by about 25% in Y 2019, a repeat of the same dynamics this year opens the door to growth in the region of 2000 oz, which will be higher than the record levels of Y 2011. It is consistent with the times of extremely cheap money at a relatively healthy rate of growth.