By Nour Eldeen Al Hammoury
Safe Haven Assets in Demand
Safe haven assets were the star of the week ending on February 12, as global stocks entered a bearish market phase.
But will this demand continue for long? To answer this a question, traders and investors need a fundamental catalyst to reenter the markets and/or regain trust in equities, which is not there yet. Therefore, such demand may continue in the upcoming weeks.
Gold Further Shines
Contrary to media speculation that gold was no longer a safe haven asset, gold prices marked a significant rise by more than 17 percent since the beginning of January, while global stocks were down by more than 20 percent.
The increase also proves that gold will never lose its status as a safe haven asset.
In the meantime, gold is facing significant resistance at the $1,262 per ounce barrier, and if it manages to break above that line, I will be upgrading my view to strongly bullish. By then, gold trading at $1,300 could be seen next.
An increased demand on gold has pushed the prices of the precious metal higher, as it posted its biggest weekly gain in five years. Gold prices jumped by more than 5.5 percent during the weekly trading sessions ending February 12, the highest since 2011. On February 11, gold registered its biggest one-day gain since January 2009, hitting $1,263 an ounce.
Despite the latest decision by the Bank of Japan (BoJ) to introduce negative rates, the Japanese Yen recorded a two-year high since July 2014.
An intervention by the BoJ is highly possible to stop the continued strength of the Japanese currency. But, traders should not be thinking about levels above 120.0 it is already too high.
The USD to Japanese Yen (USDJPY) declined sharply in few days from 122, to 110.98 by February 12.
In December, I had noted that I preferred the Japanese Yen for the next few months, unless the BoJ increases its quantitative easing (QE). Negative Rates Might Be the New Normal
Traders must keep an eye on central banks’ new policies, which may change investors’ understanding of the current system.
No one ever thought that interest rates would be negative, yet here we are with negative rates setting the trend as the new norm for the global economy.
Several banks have already introduced negative rates, including the European Central Bank, Bank of Japan, Swiss National Bank, Sweden and Denmark. Even the Federal Reserve noted that negative rates remain a possibility should the economy need more easing again.
Following the UAE’s energy minister’s comments on February 13, Crude Oil rose sharply at the end of last week. WTI Crude is adding more than 12 percent of gains while Brent advanced by more than 12 percent. However, there is no confirmation or denial of such remarks. Moreover, there is no decision yet to cut the production. Therefore, such a spike may fade as with previous ones. Oil might be near its lowest price. But traders should not expect skyrocketing prices anytime soon.
An earlier version of this article credited another writer for this piece. This article is written by Nour Eldeen Al Hammoury, Securities Chief Strategist, ADS. The error is regretted.