Global safe-haven sentiment ran high this week, yet traditional safe-haven assets showed sharp divergence: U.S. Treasuries drew strong demand, the yen climbed to a key technical level, while gold unexpectedly declined.
Gold fell below $4,000 per troy ounce on Friday, touching a more than three-month low of $3,986.50, with a cumulative weekly decline of 4%. Berenberg analysts noted that gold's drop "against a risk-averse backdrop" represents a "noteworthy divergence."
Meanwhile, French fiscal concerns pushed the yen to a one-year high against the euro, with USD/JPY breaking below the key support level of 157.50 to around 156.9. Goldman Sachs (GS.US) FICC listed the yen as the preferred hedge in the current environment. The U.S. 10-year Treasury yield fell back below 5% on Thursday for the first time in a month, making it the most favored safe-haven destination this week.
The concentrated release of risk aversion this week stemmed from multiple overlapping pressures: France's budget deficit triggering European sovereign debt concerns, suddenly rising doubts about whether AI capital expenditure can continue to secure financing support, and persistent tensions in the Middle East geopolitical situation.
Gold Loses Its Safe-Haven Halo, Diverging from Historical Patterns
Gold's performance this week clearly contradicted its traditional safe-haven attributes. Typically, falling U.S. Treasury yields benefit gold, which offers no yield, but investors this week continued to sell gold while flooding into Treasuries. Berenberg analysts said the last time gold performed this weakly when Treasury yields fell sharply was December 2008, the deepest phase of the global financial crisis. Analysts believe gold's current weakness is closely tied to its role as a speculative asset over the past year. That speculative frenzy once pushed gold prices to a record high above $5,400 in January this year, but as those traders gradually exited, prices have since fallen by more than one-fifth.
CME Group (CME.US) Chief Economist Erik Norland said the biggest driver of precious metals price declines this year is the market's shift in expectations from rate cuts to rate hikes. However, he also noted that given fiscal deficits eroding bond market confidence, rising inflation, geopolitical risks, and continued central bank gold purchases, gold prices remain far above early 2025 levels, which is "surprising."
World Gold Council data shows that central bank gold purchases rose to their highest monthly level since November 2024 in September. World Gold Council Senior Market Strategist John Reade said at the institution's precious metals summit that high interest rates have reduced gold's investment appeal, while high energy prices have weakened consumers' ability to buy gold. John Reade said: This year, in the absence of safe-haven buying, fundamental factors carry greater weight. At the World Gold Council summit, several fund managers remained cautiously optimistic about gold's outlook, expecting prices to rebound, but current technical and capital flow pressures make this expectation face greater uncertainty.
Berenberg analysts warned that Friday's gold close below the $4,000 mark "may trigger further outflows from gold ETFs and technical selling across the entire gold equity sector." Gold ETF demand already declined in the first half of this year, rebounded in the third quarter as September sales recovered, but current price action poses new pressure on related capital flows.
Yen Becomes the Most Sought-After Safe-Haven Asset This Week
While gold faltered, the yen became the biggest beneficiary of safe-haven trades this week. Driven by escalating French debt concerns, the yen rose to a one-year high of 175.20 against the euro, while USD/JPY fell to a five-week low of 156.08. Goldman Sachs (GS.US) FICC analyst Chryssafis listed the yen as the top hedge in the current AI bubble burst scenario, with USD/JPY having broken below the 157.50 multiple-bottom support and the 50-day moving average. Goldman Sachs (GS.US) believes that declining attractiveness of U.S. dollar assets and capital repatriation to Japan will drive yen appreciation. Goldman Sachs (GS.US) long-term fair value model shows the yen is undervalued by about 40% against the dollar, making it the most undervalued among the currencies it tracks.
Japanese government data shows that consumer prices excluding fresh food rose 2.1% year-on-year in September, accelerating from 1.7% in August, but inflation remains moderate compared to the U.S. and Europe, which also enhances the yen's appeal relative to other major currencies.
Mizuho Bank (MFG.US) market economist Kyugo Hasegawa noted in a research report that French fiscal problems boosted the Swiss franc while raising market alertness that the Swiss National Bank might intervene to limit franc appreciation, which may divert some safe-haven flows to the yen. However, he also emphasized that whether the yen can rise further ultimately depends on the direction of Japan's domestic fiscal and monetary policy.
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