Gold falls below $4,000, yen rises to resistance level, market becomes picky about 'safe-haven assets'

This week, global market risk aversion surged, but traditional safe-haven assets showed significant divergence: US Treasuries were in high demand, the Japanese yen rose to key technical levels, while gold fell counterintuitively.

On Friday, gold fell below $4,000 per troy ounce, hitting a more than three-month low of $3,986.50, with a cumulative weekly decline of 4%.

Berenberg analysts pointed out that gold's decline in a "risk aversion environment" is a "noteworthy divergence".

Meanwhile, French fiscal concerns pushed the yen to a one-year high against the euro, and the US dollar fell below the key support of 157.50 yen to around 156.9. Goldman Sachs FICC listed the yen as the preferred hedging tool in the current environment.

The yield on 10-year US Treasuries fell back below 5% on Thursday for the first time in a month, making it the most favored haven this week.

This week’s market risk event was triggered by multiple overlapping pressures: France’s budget deficit igniting concerns over European sovereign debt, a sudden spike in doubts over whether AI capital expenditures can continue to secure financing, and ongoing Middle East geopolitical tensions.

Gold's performance this week was clearly at odds with its traditional safe-haven attributes. Usually, declining US Treasury yields are favorable for non-yielding gold, but investors this week have been flocking into government bonds while continuing to sell off gold.

Berenberg analysts noted that the last time gold performed this weak during a sharp decline in Treasury yields was in December 2008, the darkest phase of the global financial crisis.

Analysts believe gold's current weakness is closely related to its role as a speculative asset over the past year. This speculative fervor once drove gold prices to a historic high above $5,400 in January, but as those traders exited, gold has retreated more than 20%.

CME's Chief Economist Erik Norland noted that the biggest driver for the decline in precious metal prices this year is the shift in market expectations from rate cuts to rate hikes.

However, he also pointed out that considering the erosion of bond market confidence by fiscal deficits, rising inflation, geopolitical risks, and ongoing central bank gold purchases, gold prices are still far above early 2025 levels, which he finds "surprising".

According to the World Gold Council, central bank gold purchases rose in September to their highest monthly level since November 2024. John Reade, Senior Market Strategist at the World Gold Council, said at the organization's Precious Metals Summit that high interest rates have made gold less attractive as an investment and high energy prices have reduced consumers' ability to buy gold. John Reade said:

This year, with a lack of safe-haven buying, fundamental factors play a greater role.

At the World Gold Council Summit, several fund managers remain cautiously optimistic about gold’s outlook and expect prices to rebound, but prevailing technical and fund outflows make this expectation much more uncertain.

Berenberg analysts warn that if gold closes below $4,000 on Friday, it "could trigger further outflows from gold ETFs as well as technical sell-offs across the entire gold stocks sector".

Gold ETF demand has already declined in the first half of this year. There was a rebound in the third quarter as sales picked up in September, but the current price trend brings new pressure on related fund flows.

With gold losing ground, the yen has become the biggest beneficiary of safe-haven trades this week.

Driven by growing French debt worries, the yen rose to a one-year high of 175.20 against the euro, and the US dollar fell to a five-week low of 156.08 against the yen.

Wallstreet Insights mentioned that Goldman Sachs FICC analyst Chryssafis has listed the yen as the preferred hedging tool in the event of an AI bubble burst; the USD/JPY pair has broken through multiple bottom supports and the 50-day moving average downward at 157.50.

Goldman Sachs believes decreasing attractiveness of US dollar assets and a return of capital to Japan is driving yen appreciation. According to Goldman's long-term fair value model, the yen is undervalued by about 40% against the US dollar, making it the most undervalued among the currencies it tracks.

Japanese government data shows that in September, consumer prices excluding fresh food rose by 2.1% year-on-year, accelerating from 1.7% in August, but inflation is still relatively moderate compared to the US and Europe, which also enhances the yen's appeal versus other major currencies.

Kyugo Hasegawa, market economist at Mizuho Bank, pointed out in a research report that French fiscal issues have boosted the Swiss franc and triggered concerns that the Swiss National Bank may intervene to curb the franc’s appreciation, which could lead some funds to flow into the yen for safe haven.

However, he also emphasized that whether the yen can further appreciate ultimately depends on the direction of Japan's domestic fiscal and monetary policy.