It seems that every time new, scary headlines emerge, press articles declare that gold no longer serves as a safe haven. The Italian political crisis is the latest case in point. The evolving situation in Italy is supportive of gold, as shown by its resilience against a strong move in the U.S. dollar.
U.S. Dollar Index vs. Price of Gold for May 2018
Source: Bloomberg. All values are rebased to 100. Data as of 31 May 2018.
Gold responds to genuine global systemic risks. These are risks that can have a negative financial impact on just about everyone personally and/or professionally, i.e., risks that bring excessive inflation or deflation, currency, debt, banking crises, or geopolitical events that impact trade and commerce. Localized risks that are the subject of most headlines do not elicit a strong response from gold.
If the situation reaches global systemic proportions, we are sure there will be a strong response from the gold market. Until then, investors should be wary of the implications of the seemingly endless stream of scary headlines.
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