In a short discussion with a couple of investors in a meeting, I shared my view that gold could see a further pullback while the US dollar strengthens in response to the latest escalation in the Middle East. After such a meteoric rise, some profit-taking in gold would not be surprising. Gravity does exist, even in financial markets.
Interestingly, both gold and the dollar continue to wear the “safe haven” badge during times of turmoil. It is one of those rare moments where two supposed opposites end up sitting at the same table. At least the dollar has stopped “collapsing” as some had feared not too long ago. From time to time, the greenback still has a habit of reminding everyone why it remains the world’s default safe haven.
I’m also keeping a close eye on rising volatility and bond yields. Volatility spikes have historically signaled buying opportunities. The probability of further Fed rate cuts is dropping quickly as inflation pressures resurface. Central banks can talk about easing all they want but if commodity inflation keeps climbing, their hands are effectively tied.
You have no doubt heard from the media about the effective halt of oil and LNG shipments through the Strait of Hormuz. It has been hard to miss given the dramatic headlines and round-the-clock coverage.
While the spotlight remains firmly on energy because, of course, empty petrol stations make for better coverage, another issue is quietly building in the background that is a significant flow of critical fertilizer inputs has also been disrupted.
As for Trump, the situation has become a much more complicated for his administration ahead of the US mid-term elections. In geopolitics, there is always a way for any politicians to keep their voter base on side. The US can simply declare that key objectives have been achieved and pivot back to diplomacy.