We’re now a little over half way through the 10th month but the ‘October effect’ has seemingly jangled investors’ nerves again.
Some of the most notable stock market crashes have occurred during October, including the Panic of 1907, Black Tuesday (1929), Black Thursday and Black Monday (1929), as well as Black Monday (1987).
Volatility in global markets amid growing trade tensions, rising US interest rates and troubles in Europe with Brexit and Italian fiscal policies has some fearing another potential market correction.
Traditionally, gold has been the go-to asset in times of fear thanks to its historical negative correlation with equities and its ability to withstand depreciation over time.
However, following the GFC it has been hard to hold this traditional view.
Recently investors have witnessed any number of potentially destabilizing events but have remained largely indifferent to gold, maintaining confidence in the world economy to weather the storms.
That’s why it was interesting to read this article by Luke Burgess on Energy & Capital arguing that the price of gold is once again acting ‘normal’. For the first time in a long while, he sees a “return of normal trading behavior, where gold is actually used as a safe haven asset to hedge economic and market risk.”
One reason may be the number of bearish reports that are casting severe doubts over continued global growth.
Highlighting an increase in the level of risk among multiple global metrics, this week’s IMF Global Financial Stability report came hot on the heels of the recent sell-off of equities in the US, Europe and Asia – and the flight to safety in the form of gold.
The World Gold Council discusses the IMF report further in its latest Investment Update, which is available for download here.
