Investors Increasing Exposure to Haven Assets Amid Rising Risks

Market Trends - 12/04/2017

Gold prices have pushed to their highest level in months as geopolitical risks continue to mount.  The strongest evidence yet of this growing sense of risk aversion has manifested itself in the Chicago Board Options Exchange VIX Volatility Index.  The index, which tracks traders’ expectations of volatility in the S&P 500, has already risen by 5.57% in the session, climbing significantly for a third straight day and managing to top the highs reached on Tuesday.

However, apart from volatility measures in the S&P 500 there has been an explosion in the European VIX, which is tied to volatility expectations in the Euro Stoxx 50 equity benchmark.  Growing uncertainty facing the upcoming French election is sending investors in Europe running for cover.  A near four-way tie amongst the candidates raises the risks of a sharp departure from business as usual in the country, with many voters planning not to participate according to the most recent polling measures.

Although stock benchmarks both in the US and Europe have not shown any serious signs of capitulation amidst the gains in measures anticipating greater volatility, the beneficiaries of worsening sentiment have been precious metals.  Gold prices have reached their highest point since the US election back in November and despite a modest pullback during the session, remain above the previous session’s close.  Though the dollar spent the last two week’s strengthening, gold’s historical relationship with the US currency has shown a modest breakdown, indicating that other factors are pushing precious metals.

Besides election fervor in Europe, building tensions between the United States and Russia continue to push metals higher.  As the prospect of a showdown between the two nation’s looms after US Secretary of State Rex Tillerson’s recent visit to Moscow, gold prices may have further room to run near-term even amid the possibility of more upside in the dollar.


This website uses cookies to ensure best possible user experience. Read more