Monday , January 18 2021

What Gold's Price Plunge Tells Us About the Record-High Stock Market, Crypto Coins News


  • Gold price dropped by 4% as U.S. stock market hit record highs.
  • Major U.S. banks including JPMorgan and Citibank closed positions on gold for more risky alternatives.
  • Nobel laureate says geopolitical risks are over-estimated, making the environment better for stock market over gold. )

Thegold price has dropped by 4%in the past nine days against the US dollar as theDow Jones surged past its all-time high.

In previous weeks when the Dow Jones demonstrated promising upside movements,gold continued to rally, as investors were cautiousabout various geopolitical risksthat posed a threat against the momentum of the equities market.

In the past two weeks, the spike in the Dow Jones from 27, 046 to 27, 681 Pointscoincided with a noticeable drop in the gold price, indicating that investors are moving out of the safe haven asset market to re-enter the equities market.

Big investors are moving away from gold to more risky options

Some of the world’s largest b anks by market capitalization includingJPMorgan and Citibank have closed their positions on goldas the sentiment around the US stock market

JPMorgan strategists Marko Kolanovic, Nikolaos Panigirtzoglou and John Normand named cyclical recovery, lessening geopolitical risks, increasing monetary easing from central banks, and more investors on the defense as the main reasons behind their change in stance towards gold.

Term premiums for bonds have started to declineas well, which historically have indicated a sell-off for bonds, sending a “red alert” to investors in the bond market.

Roberto Perli, a partner at Cornerstone Macro LLC, told Bloomberg:

Term premium was extremely depressed due to trade uncertainty, Brexit and you name it. These risks have abated so there is room for about a 50 basis point move higher in term premium. And given the Federal Reserve is on hold – with no chance of lifting rates – there’s a lot of incentive for investors to take risk.

The gold price records a sharp drop against the US dollar in less than two weeks (source: TradingView)

As gold and bonds struggle, and major banks shift from safe havens to riskier options amidstbrightening global economic sentimentand productivity, the upward trend of the Dow Jones is expected to be sustained.

The market anticipating a deeper pullback for bonds may also suggest that investors are dismissing thepossibility of the trade deal between the US and China falteringdespite the statement of U.S. President Donald Trump, which is to establish a strong ground for the Dow Jones to initiate an extended rally.

Nobel laureate says geopolitical risks over-estimated

According to Nobel laureate Robert Engle, an economist at NYU Stern, numbers show thatgeopolitical risk in the global economy is lower nowthan it was

“Is geopolitical risk really higher now than it was before? ‘I don’t know how confident I am in the answer, but the numbers at least suggest that it’s not, he said.

Theoutflow of capital from the safe haven marketis demonstrating the over-estimation of the potential impact of geopolitical risks on the market by investors, which over time could play as a catalyst for the strengthening momentum of the Dow Jones.

This article was edited b y Samburaj Das.

Last modified: November 9, 2019 11: (UTC)

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