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BNY’s Head of Markets Macro Strategy Bob Savage notes that Gold has broken a five-week winning streak, losing 3% as the Dollar rallied and Oil surged. The report stresses that investors still view Gold as an alternative to fiat currencies but see less momentum, and that restoring the historical Oil–Gold correlation could require either higher Oil or lower Gold prices.
Safe-haven appeal under reassessment
“For the last week, investors shunned bonds amid fears an energy shock could reduce interest rate cuts in the U.S. and U.K. and raise rate-hike risks in the EU. Gold lost 3% on the week, the first drop in five weeks, as the USD bounced 1.7%, the most in four years. Oil rose by more than 20% and natural gas by more than 50%, prompting wider stagflation concerns across the world.”
“Our risk sentiment index reflects this as well, with iFlow Mood peaking two weeks before the conflict (99th percentile) and now back to neutral territory (64th percentile). Investors are still watching gold as an alternative to fiat currencies, but there is notably less momentum and demand.”
“The pressure for markets will be to return the oil-to-gold correlation back to trend, suggesting sharply higher oil prices or lower gold prices. Most investors are motivated to treat the current conflict as noise and focus on the underlying economic trends.”
“Oil remains the transmission channel into inflation expectations, rates and currency markets, with the dollar’s resurgence echoing the 2022 energy crisis playbook. Yet gold’s fading momentum and still-neutral risk sentiment suggest investors are not fully positioned for a prolonged stagflationary impulse.”
