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Gold and silver work as safe havens while fear spreads all over

Safe havens such as gold and silver work in the time of bloodbath spreading all over markets. But tomorrow's US inflation can spark even more volatility.

Run on banks

The current market situation sparked enormous fear among investors, especially in the banking sector. The situation over the Silicon Valley Bank sparked the run on banks and almost immediately affected both, big and regional banks. From the big players, the biggest loser is currently The Charles Swab Corporation with a decline of -11.48%. The regional sector got stronger hits like the First Republic Bank, which is currently -65.50%. And these numbers are just a 1-day performance data.

Read more: Financial sector bleeds amid bank failures; who’s next to go bust?

The banking sector is not the only one that is affected. The fear factor works effectively and the negative sentiment is seen throughout all markets. But if the fear is in workings, it is the prime time for safe havens. 

Safe havens work

Classic safe havens such as gold, silver, CHF, and JPY work in a time of not negative, but fearful sentiment. Investors are shocked and wait for another government’s and Fed’s steps. Currently, the market participants do not know what is going to be next, and how the situation will be handled. And this waiting negatively affects further development. But there is a difference between negative sentiment and fearful sentiment. 

A shocked market is definitely a fearful one, and in that case, the safe havens have their prime time. The chart below shows the comparison of the 1-day development of the two most famous indices and commonly known safe-havens. 

The 1-day performance of SP500 and DJI vs. Gold, Silver, USDCHF, and USDJPY. Source: Bloomberg.com

The 1-day performance of SP500 and DJI vs. Gold, Silver, USDCHF, and USDJPY, source: bloomberg.com

Correlation vs. fear

The correlation between gold as the main safe haven and SP500 was in highly positive territory thanks to the situation about Fed’s monetary policy. Where higher interest rates hurt the gold and stock exchanges. Gold has no interest, therefore the financial assets with higher rates are more competitive. Stocks were hurt because the higher interest positively affects the U.S. Dollar. 

You may be interested in: Are we in contagion, bank run, or recession? What do the experts say?

But this correlation is over. Especially in times of high fear. As it is seen from the chart above, just today silver appreciates by +6.75%, and gold gains +2.58%. JPY appreciates +1.30% against USD, and CHF considered another safe haven gains +1.04%. And the day is not over.

Tomorrow’s inflation data 

The next two weeks will be very crucial as Fed’s Powell testified that another interest hike must be done to calm the inflation. As the consequence, the banking sector has started collapsing. So what will be the next steps? And what about tomorrow’s inflation data from the U.S? Inflation is the most watched indicator for setting the next monetary policy, so it will definitely play a key part. 

Tomas is a professional trader and money manager on foreign exchange market from 2014. His main domain are commodities. Experiences gained due this period are transformed to consul...

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