Feb 20, 2020 - Economy & Business

Gold rising with stocks, yen falling with bond yields

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Data; FactSet; Chart: Axios Visuals

Markets are behaving strangely as investors attempt to make sense of the growing threat of the novel coronavirus. Assets that typically move in opposite directions are moving together, and assets that traditionally are very correlated are taking inverse tracks.

State of play: The market's two most popular safe-haven assets, gold and the Japanese yen, have decoupled and are moving in opposite directions.

  • Gold has risen to its highest level since 2013, while the yen has fallen in value against the dollar to its weakest in nine months.

The big picture: “The big wave of risk-off has sort of dissipated right now, but still the economic fallout is buttressing the demand for gold,” Stephen Innes, chief market strategist at AxiCorp, told Reuters.

  • “The stronger dollar is not really curbing the inflows to gold ... from an inflation perspective, a stronger U.S. dollar is working against the U.S. Federal Reserve’s inflation target and is pointing towards lower interest rates."

Of note: Lower interest rates reduce the opportunity cost of holding gold and typically also reduce the attractiveness of holding dollars.

Go deeper: Economists warn coronavirus risk far worse than realized

Go deeper

The Fed may be setting the table for 2020 rate cuts

Illustration: Sarah Grillo/Axios

The Fed looks to be laying the groundwork to lower U.S. interest rates this year, just as they did in April 2019 before cutting rates in July, September and October.

Why it matters: A Fed rate cut makes taking on debt more attractive for U.S. consumers and businesses, helping to juice the economy, but also puts the central bank in a weaker position to fight off a potential recession.

Dollar rises to record highs as businesses prepare for coronavirus disaster

Data: FactSet; Chart: Andrew Witherspoon/Axios

Panic in financial markets has grown to the point that many now believe the only safe asset is the U.S. dollar.

Driving the news: The value of the dollar index rose to near its highest level in 18 years, as banks, traders and businesses made a rush for cash, fearful they could run out as the economy sinks into recession.

There Is No Alternative to Treasuries

Data: FactSet; Chart: Axios Visuals

The acronym TINA (There Is No Alternative) had long been used to explain why investors piled into U.S. equities, but it may now apply to U.S. Treasuries.

State of play: After Monday's sell-off, the S&P 500 has erased all of its gains dating back a year, and the dollar, emerging market equities and oil are all negative during that period.