Is the Greenback the new gold?

Forget gold, buy US dollar say analysts.

Despite ongoing problems surrounding Brexit negotiations as well as the havoc being caused on world financial markets due to the new tariffs the US government has introduced against potential foes as well as some close allies, the US dollar keeps powering ahead.

The question on everybody’s mind, is why is the gold price remaining subdued and shouldn’t it be a favourite asset to invest in amongst traders with all this uncertainty going on.

Is it possible the market is shunning our most precious metal in favor of the greenback to protect themselves against the unknown and uncertainty in emerging markets and is this the end of gold as a hedge against uncertainty?

It may only be a temporary situation but according to some, this is exactly the situation at the moment.

“A significant driver of the dollar’s gains this year has been reduced risk appetite, spurring a tide of capital to dollar assets as emerging markets seize up” said Jane Foley, head of currency strategy at Rabobank.

 “The sheer liquidity associated with the dollar means that for some investors it will always be a safe haven,” she added.

Of course if history is anything to go by, gold is just following a typical pattern by losing ground when the US dollar strengthens as investors prefer to invest in one or the other but not both at the same time.

“We’ve seen a very tight relationship between gold and the dollar recently,” said Carsten Menke, a commodities strategist at Bank Julius Baer & Co. Ltd

 “It’s very difficult to make money trading gold when the dollar is rising.” He added.


Analyst

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