Risk-off ‘flight-to-quality’ supporting gold prices and Treasury markets

Goldhub blog

Risk-off ‘flight-to-quality’ supporting gold prices and Treasury markets

Adam Perlaky
Manager of Investment Research
World Gold Council


Broad Markets

  • Stock markets across the globe continued their downward price trend last week amidst higher volatility as US/China trade rhetoric continued
  • US tech stocks were hit the hardest, dropping by 2.7% on the week and 6.6% month-to-date, as President Trump’s decision to ban Huawei has had a ripple effect
  • European stocks fell by 2% and Chinese stocks by 1%
  • Commodity prices also fell, led by oil which dropped 6.6% on the week and a cumulative 7.4% m-t-d
  • As uncertainty increased, investors looked for high-quality assets, pushing US Treasury bond yields lower and flattening the 2s/10s curve further (lowest level for the curve since the December stock market selloff, and the lowest absolute level in the 10y since Q3 2017)
  • The US 3m/10y curve is once again negative as well, at levels seen during the financial crisis. Bond investors now expect an 80% chance of a rate cut by the end the year
  • In Europe and Japan, front end yields rose, but long-term ones well, which can be interpreted as a bearish view on long term growth. This flight to quality also supported gold (see below)
  • During this holiday-shortened week, investors will continue to focus on US/China trade discussions and insights into the choice for Britain’s next prime minister.


  • Gold rose last week as global markets were ‘risk-off’ and the US dollar fell 0.4% (LBMA 0.1%, XAU 0.6%)
  • COMEX net longs decreased meaningfully from 400t to 248t after increasing for three straight weeks after net speculative longs fell to nearly flat again
  • May gold trading volumes increased last week and are now averaging $113bn a day in May; levels in line with the ytd average, but 9% over April averages
  • Gold remains flat on the month and year, which is reflected by extremely low implied and realized volatility.


Comex Net Longs

Source: Bloomberg

Gold-backed ETF flows

  • Globally, gold-backed ETFs experienced inflows of US$33mn last week, coming from North America; the second week in a row of inflows for North America this month
  • Asian funds had outflows again last week, having lost 7% of its assets this month and 18% of assets this year
  • On, the month, Europe is the only region with positive flows, with an increase of 1% of assets
  • Year-to-date there have been global outflows of $923mn or 1% of assets, again with European funds having the only net inflows globally.

Gold price

Source: Bloomberg


  • Gold continues to trade below the psychological level of $1,300, which coincides with the 200d moving average, and below the downtrend resistance line
  • The 50d moving average at $1,275 should act as intermediate support, and we would not expect gold to move sharply either direction unless it is able to close above the 200d or below the 50d.