Thrills, Spills, and Chills

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A Thrilling Ride…

On February 5th, the stock market fell out of bed and broke both legs.

The Dow Jones Industrial Average fell by 4.6%. While equity markets hit free fall, gold climbed. This dynamic illustrates once again the risk-mitigating characteristics of gold. “The stronger the market pullback, the stronger gold’s rally,” remarked The World Gold Council (WGC). Researchers have cited comparable events like Black Monday, the global financial crisis, and the European sovereign debt crisis. In fact, the hedging effect is even more pronounced during periods of prolonged corrections in stocks. Today’s equity markets, characterized by increased volatility, has illustrated, time and again, that gold can bolster overall portfolio performance during periods of uncertainty. Case in point: gold has been among the best performing asset classes year-to-date beating treasuries and corporate bonds.

Meanwhile, other investments, like cryptocurrencies, have not fared well. It’s worth noting that rising gold prices are not driven by short-term fears alone. For example, 90% of gold demand comes from outside the U.S. “As European currencies weakened against the US dollar during the week, gold’s price in those currencies strengthened. Gold rallied by 0.9% in euros and 1.8% in British pounds between Friday, February 2nd, and Monday, February 12th,” explains the WGC.

A Spilling Tide…

Ever wonder what 3 tons of gold scattered on a runway looks like? Wonder no more. A cargo plane loaded with 9.3 tons of gold took off down a Russian runway, but the door was not properly secured to withstand the weight of the shifting payload. 172 gold bars tumbled out the back and onto the ground over a 10-mile radius. Authorities shut down the runway and reportedly recovered 172 bars. The plane was headed for the Russian city of Krasnoyarsk. Other assets were scattered including various precious metals and diamonds.

The bars, known as dore, were semi-pure alloys of gold and silver. Such bars are often created at the site of a mine with the intention of further refinement at a plant. The value of the total payload was $398 million. After noticing the spill, the crew landed at another airport close to their original departure point. Authorities have started an internal investigation to understand why the accident occurred.

A Chilling Rise…

One of the coldest countries on the planet is going for the gold. Russia’s Central Bank Gold Reserves rose to 1,857 tons in January. This total surpasses that of the People’s Bank of China which holds 1,843 tons. The country added 18.66 tons in the month of January alone making them the fifth largest gold reserve in the world. These increases are just the latest in an ongoing trend characterized by fervent gold purchases. In fact, since June 2015, the Central Bank of Russia bolster their holdings with 576 tons. While the motivations for the purchases aren’t entirely clear, more gold would distance the country from the dollar at a time when U.S. sanctions are on the rise and tensions between the two countries rise.