Stocks, bonds and gold have all been moving upwards in 2017.
Traditionally, gold and treasuries inches downwards as stocks climb upwards. However, in the past six-months this inverse relationship has been frayed, perhaps this shows signs of trouble ahead.
While stocks are just below all-time highs, gold keeps inching upwards.
Perhaps the US dollar has a stronger and more reliable inverse relationship with the precious metal and investors should look to the currency pair for guidance instead.
This year, the dollar has declined steadily this year and has been tightly pinned to both the Federal Reserve and drama stemming from Washington.
Recently, gold has been dragged down by the Federal Reserve’s signals that another rate hike is coming this year. Last week, the precious metal retreated for the second-straight week as investors priced in another increase for the cost of borrowing.
Speculative investors have also taken a step back from the precious metal, reducing their net long positions, even before the Federal Reserve’s meeting on Friday.
While last week’s rate increase was fully expected, what was most surprising was just how hawkish the federal reserve was, in spite of lagging inflation policymakers are positive that the US economy will be able to support a further tightening of monetary policy.
Monday marked the first day of the two-year divorce process the UK and Europe have undertaken. As the talks continue, we could see an increase in demand for gold as the uncertainty surrounding the tough Brexit negotiations hits investors.
The rally we’re seeing in equity markets would suggest that investors are favouring riskier assets. If you need confirmation, you can look at other safe-haven assets – The
Japanese yen and the Swiss franc have both weakened this year, supporting the idea that investors are taking on more risk despite the flurry of geopolitical obstacles.