Not Registered? Register Now.

1. My Profile >2. Additional Information

By submitting below you certify that you have read and agree to our privacy policy.

Commodities

Gold price moves on 12th March 2020 opening up attractive entry points

13 Mar 2020
Nitesh Shah, Director, Research


Gold prices fell 3% on 12th March in what looks like selling to meet liquidity needs while nominal US Treasury yields also rose from intra-day low of 0.64% to an intraday high of 0.91%, most likely due to the same phenomenon. Gold and Treasury Inflation Protected Securities (TIPS) are moving in a similar fashion, as shown in Figure 1. Sharp declines in equity and other cyclical markets on 12th March (e.g. S&P 500 down 10% and oil down 7%) were setting off circuit breakers and triggering the selling of high quality, liquid assets very likely in order to meet margin calls. We saw a similar decline in gold prices at the end of February (although that did not come with a Treasury sell-off). We believe that gold and Treasuries are doing their job, acting as liquid assets in times of stress. Further violent moves in equities could trigger more gold selling on a temporary basis. However, we also believe that if gold proves its worth, by being a source of liquidity when markets are under duress, we are likely to see demand rise.

 

Figure 1: Gold (yellow, left) price vs. US 10-year TIPS Yields (white, right, inverted axis)

 Source: Bloomberg, data from 00:00 10th March 2020 to 08:00 13th March 2020.
Historical performance is not an indication of future performance and any investments may go down in value.

 

 

Looking back at the global financial crisis, gold prices initially fell in October 2008 alongside equities. By November 2008, the gold price started an upward rally, that ultimately saw it rise 170% by August 2011 (Figure 2).

 

In 2008, the initial price declines were widely attributed to margin calls and liquidity needs. If history is any guide to the future, the price declines on 12th March may have opened up good entry points for investors seeking access to a safe-haven asset.

 

 

Figure 2: Gold (green ,left) vs equities (white, right) in Q4 2008

 Source: Bloomberg, data from 01 September 2008 to 31 December 2008.
Historical performance is not an indication of future performance and any investments may go down in value.

 

 

 

Related blogs

Gold: how we value the precious metal

Is a previous gold bull scenario repeating itself?

 

 


Read More
Commodities, Fixed Income, Gold, Market Volatility


Previous Post Next Post
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.

REGISTER TO RECEIVE BLOG ALERTS

By submitting below you certify that you have read and agree to our privacy policy.