Abu Dhabi, UAEThursday 22 August 2019

Global equity rout pushes investors to seek security in gold

About $5.6 trillion of equity value has been obliterated in Asian markets this year as the global carnage shows no let-up

Political tumult in the US and concerns over slowing global economies have pushed Asia stocks lower. AP
Political tumult in the US and concerns over slowing global economies have pushed Asia stocks lower. AP

With three days of Asia equity trading left for the year and low volumes across the board, traders don’t seem to be taking any chances.

About $5.6 trillion (Dh20.56tn) of equity value has been obliterated in the region this year as the global carnage shows no let-up. And investors are bracing for volatile days ahead, Bloomberg reported.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.5 per cent, to a two-month low. Japan’s Nikkei 225 Stock Average also had a choppy day but ultimately closed up 0.9 per cent after entering a bear market on Christmas Day.

The US stock-index futures fluctuated between gains and losses, with the S&P 500 Index on the brink of entering a bear market when it reopens on Wednesday. Markets in Hong Kong, Australia and New Zealand remain closed for a holiday.

There’s a chance that the 10-year US bull market comes to an end when markets reopen even after US President Donald Trump gave his first expression of public support for Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell since Bloomberg last week reported that the president had discussed dismissing the Fed chief, who was recommended by Mr Mnuchin.

“The direly weak sentiment continues to be the engine behind the declines for markets that have yet to find the panacea in the form of any positive impetus,” said Jingyi Pan, market strategist for IG Asia. “The weight that is given to President Trump’s assurances is simply much lighter than the threats he is throwing.”

US stocks have dropped sharply in recent weeks on concerns over weaker economic growth. Mr Trump has largely laid the blame for economic headwinds on the Fed, openly criticising its Mr Powell, whom he appointed. That has further rattled investors as they grappled with fears of slowing global growth, corporate earnings and US-China trade tensions, Reuters reported.


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In an effort to reassure investors, Treasury Secretary Mnuchin spoke on Sunday with the heads of the six largest US banks, who confirmed they have enough liquidity to continue lending and that “the markets continue to function properly”.

“As far as the futures are suggesting, the market is indecisive right now,” Mr Pan told Bloomberg. “One should not be surprised if most are still waiting out the storm this week.”

Gold prices are the main beneficiaries of US political tumult, hitting a six-month high on Wednesday as concerns over global growth and a partial government shutdown in the US fuelled risk aversion, prompting investors to seek refuge in the metal.

Spot gold climbed 0.4 per cent to $1,273.77 per ounce at 8.20 AM. It hit $1,274.68 in early trade, its highest since June 20. US gold futures were up 0.4 per cent at $1,276.5 per ounce, according to Reuters.

Investors are uneasy about global economic growth and are seeking gold as a safe haven, said Yuichi Ikemizu, Tokyo branch manager at ICBC Standard Bank, adding the sharp sell-off in stock markets has also lent support.

"We always see good demand for gold in the year-end. I would not be surprised if we see gold surpass $1,300 in the near future," he told the news service.

The slump in US stocks and their the overall impact on global equities amid a partial government shutdown is worrying investors.

The US Senate has been unable to break an impasse over Mr Trump's demand for $5 billion for a wall on the border with Mexico, and the president has said the shutdown will continue us long as his demand for funds are not met.

"The latest move on gold should be a stark reminder to investors that gold in any form should be an essential part of any long-term investment strategy as again the yellow metal has proven its weight when markets turn turbulent," Stephen Innes, APpac trading head at OANDA in Singapore, said in a note.

Among other metals, silver gained 1 per cent to $14.88 per ounce, while platinum was up 1.4 per cent to $793.10. Palladium edged 0.9 per cent to $1,257.49 per ounce.

Updated: December 26, 2018 01:48 PM