Gold price compared to the dollar and the obligations: the markets have actually acted “super weird”
The financial markets have already had an unusual year, but the recent price measures have recently been particularly bizarre, according to Robin Brooks, a principal researcher at Brookings Institution.
In a substitution position Tuesday entitled “Super strange markets from Jackson Hole”, he retraced the way to key assets since the president of the Federal Reserve, Jerome Powell, opened the door to prices in a speech to the annual symposium of the Central Bank last month.
“You would have thought it would weigh the dollar, raised the S&P 500 and increases the prices of basic products. But that did not happen,” wrote Brooks. “The only thing that is moved is gold, with a massive price increase of almost 10%.”
Admittedly, the actions have rallied since its data position on benign inflation paved the way for Fed rate reductions when decision -makers meet on Tuesday and Wednesday. Gold prices also walked above, setting new heights along the way and firmly on Friday at $ 3,680.70 per ounce.
But the bond market behaved more unexpectedly. Brooks noted that the 30 -year -old yield did not drop just after Powell’s speech, but only dropped after another bad job report was published two weeks later.
“The fact that the yield of the treasure at 30 did not fall immediately is weird and worrying,” he added. “It took very low wages to finally do it.”
In addition, although the dollar index had ups and downs, it came back approximately where it was before Powell’s speech, Brooks calling for this “counterintuitive”, because expectations for the softening of the Fed would generally reduce it.
Meanwhile, Bitcoin sold after Jackson Hole, but is also back where he started, even if cryptocurrencies have generally acted as risk assets in the past and have previously rallied in pricing hopes.
“What does all this mean? The movements of the recent market suggest that gold is the ultimate paradise,” said Brooks. “Bitcoin turns out to be too volatile and speculative, therefore – like political pressure on the Fed frames – the markets revolve to gold.”
The fears of a debt crisis in France and in the United Kingdom have made higher global bond yields in recent weeks. The political imparash in France in particular has hoped that Paris will reduce the deficits of any time.
Friday evening, Fitch downgraded the credit rating of France from AA- to A +, the lowest level of the second economy in the euro zone, saying that a major change in tax discipline is unlikely.
It is possible that the crisis in France has sent more investors looking for a safe refuge to the dollar, potentially explaining why the greenback was stable, said Brooks.
After his article, other global events aroused more geopolitical concerns that could also promote the dollar. Israel attacked Hamas leaders in Qatar, a close ally of the American Middle East, triggering a net reaction in the region and sending higher oil prices.
And Russian drones have entered Polish airspace, forcing NATO allies to activate air defense systems and deploy hunter planes that have shot the plane.
“The main thing is that there are many things in the markets that are not at all well maintained together,” said Brooks.
The key question is whether the rise in gold prices is a sign that the dollar loses its status of reserve currency, although it thinks that it is just a temporary noise and sees a reversion to the average.
In a note from Tuesday, Michael Brown, the main research strategist at Peppperstone, also noticed the strange market movements that took place.
But he said that “the Tell” is the 10% drop in the dollar for a year to date compared to other global currencies, which stems from President Donald Trump’s efforts to weaken Fed’s independence, worsen deficits and reorganize the world trading system.
“When you take it all into account, these market movements suddenly start to make much more sense,” added Brown. “Yes, the correlations are unusual. But, the same goes for the macroeconomic environment, as well as the political choices that continue to be made, because government spending run away with itself through the DM, the rate cuts resume in the state, the risks of inflation remain upwards, and a potential economic reduction.”
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