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Evergrande is preparing to be a safe haven while the markets are shaking. After losing $50 last week, gold is accelerating its safe-haven move as investors seek hedges amid Evergrande volatility. Cryptocoin. com

As we reported , gold saw double-digit gains on Tuesday triggered by a global stock sell-off that boosted risk aversion among investors. December Comex gold futures were trading at $1,780,40, up nearly 1% on the day.

Gold price and developments in China

When the news broke about the leading Chinese property developer Evergrande, there was no significant impact on precious metals at first. But things have changed since then, said Nicky Shiels, head of metal strategy at MKS PAMP GROUP:

Triggered a broad sell-off in US stocks (largest 1-day drop since October 2020) … “Macro fear” woke up as this Evergrande/Chinese real estate crisis is now intensifying (fall effects) falling 87% in one day!) – so we still have an unresolved Asian “gray swan”, but this is another excuse to mitigate risk exposure.

Things are heating up even more as Evergrande, the world’s most indebted real estate developer, paid $84 million in interest on its bonds on Thursday. Investors are most concerned about the contagion effect. Shiels says:

After all, growing concerns around Evergrande highlight an even more structural issue, as markets focus on the overregulation of China (everything from internet stocks to the commodities to the ultra-rich). For many years (since 2009) there are ghost towns that come back to haunt investors/markets as a result of large-scale bad investments.

From uncertainty to safe harbor

This uncertainty has fueled the search for a safe haven, which is why the precious metal is seeing this increased interest this week. Hence, from US Treasuries (10-year yields down from 1.38% to 1.3%), US dollars (moving towards key s/t ceiling at ~93.50) and gold (not just surviving but ) is guaranteed. Shiels commented on the price action of gold on Monday. This is a significant change for the precious metal, which fell into obscurity after falling from $1,807 to $1,750 last week.

If gold manages to hold its gains, this could signal a shift in the recently disappointing trading pattern. “This newly discovered relative strength of gold (if it holds!) is remarkable and has emerged as a safe-haven for the 2nd time this year (previously the August 18/19 stock pullback),” Shiels said. Gold’s two biggest downside risks going forward are a strong recovery in the US dollar and selling gold ETFs.


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Michael Lewis

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