Morning Bid: Gold and Yen Bask in the Limelight

As the sun rises on a new trading day, two assets have been stealing the show: gold and the Japanese yen. Both have been basking in the limelight, drawing investors' attention with their impressive performances. Let's dive into the reasons behind their recent success and explore how investors can capitalize on these trends.



Gold has been on a tear, surging to record highs in all major currencies. The precious metal finished January on an all-time-high of US$2,812, up 8% on the month. This strong start to the year builds on gold's solid seasonal record. Several factors contributed to gold's remarkable performance, including tariff fears, a weaker US dollar, and lower bond yields. The Geopolitical Risk index (GPR) also rose significantly, while the lagged momentum effect of a strong US dollar in December was the only major drag on gold prices (Chart 1).

The Chinese gold market showed evidence of strong start to an auspicious 'year of the snake' for gold, with an average premium of US$6/oz recorded following several months of discounts. Additionally, intraday slicing of spot gold prices in January suggested activity during Asian hours, including the 11am AM price, were instrumental in performance last month (Table 2). This positive momentum is expected to continue into February, auguring well for gold investors.



The Japanese yen has also been a star performer, benefiting from a flight-to-quality effect during times of market volatility. Investors sell riskier assets and seek shelter in the relative safety of the yen, driving up its value. This phenomenon was evident during the Asian Financial Crisis in 1998, the Russian ruble default in 1998, and the global Financial Crisis in 2008. The yen's safe haven status has been further reinforced by the Bank of Japan's efforts to stabilize financial markets during times of distress, including injecting liquidity and providing forward guidance on interest rates.

Investors can capitalize on these dynamics by allocating a portion of their portfolio to gold and the Japanese yen during times of economic uncertainty. Monitoring economic indicators, geopolitical events, and central bank policies can help identify potential safe-haven opportunities. Additionally, considering derivatives, such as options or futures, can provide exposure to gold and the yen without committing significant capital. Diversifying the portfolio by investing in other safe-haven assets, such as US Treasury bonds or Swiss francs, can further reduce risk.

In conclusion, gold and the Japanese yen have been shining stars in the morning bid, driven by a combination of short-term market forces and broader macroeconomic trends. By staying informed about market trends and adjusting investment strategies accordingly, investors can take advantage of these dynamics and secure their portfolios during uncertain times.