Historically gold has been the very epitome of a safe haven asset, holding relatively strong in periods of equity market weakness and indeed global turmoil. Now down around 18.5% from its all-time highs in January this year though, investors are questioning whether that still holds true. Has the recent bull-run and historically frothy price action seen gold become something of a risk asset, moving more in concert with the likes of the tech and even crypto sectors? Or does the current energy shock introduce a different and rare paradigm altogether, a crisis of liquidity?
A number of countries are now facing a significant drop in their export revenues on the back of the Iran conflict. Expenses denominated in USD, including defense spending, continue to mount up nonetheless. This funding gap has moved central banks around the globe to take the unusual step of pressing pause on gold purchases. Now some have even been forced to start selling down their gold reserves to raise USD. An extraordinary move to tackle an unfamiliar challenge. Russia’s gold sales, for example, have reportedly hit their highest level since 2002. Similarly, Türkiye has sold 59 tons from their coffers in the last two weeks. In essence central banks are turning to their gold holdings for emergency liquidity. A rare shift from the accumulative norm.
For traders, the recent price swings in gold and other precious metals proffer frequent opportunities to take a position, whatever their preferred timeframe and risk appetite. Will this structural shift continue to pressure prices to the downside, as administrators look to one of the few remaining liquid assets to meet their obligations? Or will the promise of a truce inspire stability and a resumption of the longer term upward trend? Shorter term traders may well ignore these broader viewpoints and stick to the technicals.
