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Gold Has Been A Strong Hedge Against Surging Risk Aversion and Negative Real Yields Globally

COMMODITIES
  • This year, investors have been surprised by the poor performance of gold given the constant ‘positive surprise’ in inflation.
  • Even though gold has previously sometimes failed to perform positively in periods of accelerating inflation, we argued that gold has historically been used as a 'hedge' against surging political uncertainty and market frictions.
  • In addition, gold has also been a good hedge against sustained periods of currency debasement.
  • For instance, the chart below shows the performance of gold against the major DM and EM currencies.
  • We can notice that to the exception of the BRL, MXN, USD and IDR, gold has been performing ‘moderately to extremely’ well against most of the currencies this year.
  • Gold has been a useful ‘hedge’ in the CEE region, particularly in Turkey and Hungary where political uncertainty, deep negative real yields have been dramatically weighing on the domestic currencies.
  • The precious metal has also been performing well against the JPY (G3 currency) as policymakers have been keeping financial conditions despite the rise in inflationary pressures.

Source: Bloomberg/MNI

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