A direct missile exchange involving a US ally pushed crude above $100 a barrel. The asset that normally leads on days like this went essentially nowhere.
FINANCIALMARKETS.COM | AFTERNOON EDITION
The classic safe-haven trade has stopped working on cue, and this week produced the cleanest test of that yet.
Gold traded near $4,400 an ounce through Wednesday's session, roughly flat to modestly lower depending on the hour, on a day when crude crossed $100 a barrel intraday, the S&P 500 fell, and reporting confirmed a ballistic-missile exchange that reached a US ally's territory. Three days earlier, strikes on Saudi energy infrastructure produced a similar pattern. Gold did not rally then either.
Two explanations are available and both are supported by something.
The first is that the rates channel is currently dominating the haven channel. Gold generates no interest income, which makes it sensitive to the path of policy rates, and market-implied odds of a Federal Reserve hike next week sit near a coin flip with an inflation print due Friday. On this reading gold is not ignoring the war. It is being held down by a stronger, closer force, and the metal's roughly 20.6% gain over the past year says the structural case has not broken.
The second is less comfortable for holders. If a war premium cannot lift gold when the conflict reaches a third country's soil, the premium may already be in the price. Gold has run hard for a year. A position that fails to respond to the news it was supposedly bought for is worth examining regardless of the explanation offered.
Nothing in this week's evidence resolves which is right, and no single cause can be assigned to one day's move in gold when oil, yields, the dollar and a Federal Reserve decision are all moving in the same window.
What would settle it is the Fed. If gold rallies after next week's decision regardless of what the Middle East does, the rates explanation holds. If it stays flat through a dovish surprise, the second reading gets much harder to argue against.