What’s Going On Here?
Gold and silver just had one of their worst weeks since 2017 as investors taking a shine to the state of the global economy sent the precious metals’ prices falling.
What Does This Mean?
Better-than-expected quarterly updates from big multinational companies, combined with progress towards a tentative US-China trade deal (which would reduce import costs and therefore boost companies’ earnings and economic growth), appear to have encouraged investors to buy riskier investments that stand to benefit from good times. And that tarnished the reputation of the ones they tend to buy in times of economic uncertainty.
Safe havens have borne the brunt of recent selling. In commodities, investors ditched their gold and silver holdings; in “fixed income”, they sold off super-safe (but ultra-low-returning) government bonds; and in currencies, they said sayonara to the Japanese yen. Investors also sold stolid stocks for which earnings are considered predictable – and which are therefore considered "defensive”.
Why Should I Care?
For markets: Investors show their mettle.
Investors’ flight from bonds pushed their prices down and yields up (since the two move inversely). That’s a far cry from just a few months ago, when investors bracing for a recession brought about the dreaded yield curve inversion that’s preceded each and every economic downturn over the last 60 years. Indeed, some investors remain wary: they see further interest rate cuts from the US central bank as essential to staving off a near-term recession – but with three notches in the Federal Reserve’s belt already this year, it’s probably unwilling to act unless the evidence is incontrovertible.
For you personally: The key difference between stocks and gold.
Many investors previously buying (and now selling) gold were likely speculators betting on its price increases, since gold bars don’t generate any income for its owner (and indeed, cost a lot to store in those Die Hard 3-style stacks). Stocks, on the other hand, generally pay their owners a regular dividend and bonds pay interest. Still, gold is shiny…
