Global growth worries and an intensifying trade war between the world’s two largest economies sparked a stampede into perceived ‘safe-haven’ assets on Monday.
Gold prices jumped more than 1% to hit their highest level in over six years on Monday, while the Japanese yen and core government bonds also rallied.
It comes at a time of heightened volatility in financial markets, with the pan-European Stoxx 600 falling almost 2%. That’s on top of the 2.5% it lost on Friday — its worst day so far in 2019.
Meanwhile, China let the yuan breach the key 7-per-dollar level for the first time in more than a decade on Monday. It appeared to indicate Beijing would be prepared to tolerate more currency weakness that could further exacerbate the trade conflict with Washington.
“The nervousness in financial markets over the falling renminbi (yuan) in recent weeks has reached panic levels, ” Tom Elliott, international investment strategist at deVere Group, said in a research note published Monday.
“Just as in July and August 2015, when China engineered a small devaluation to support growth, global stock markets have panicked,” Elliott said.
The CBOE volatility index — known commonly as the VIX or Wall Street’s “fear gauge” — climbed to its highest level since mid-May, while Europe’s equivalent reached its highest since early January.
At times of market turbulence, investors tend to flee to assets expected to either retain or increase in value — such as gold, the Japanese yen and government bonds.
These safe-haven assets are typically sought to limit one’s exposure to losses in the event of a sharp market downturn.
Markets have been spooked since President Donald Trump announced a plan to impose a 10% tariff on $300 billion worth in Chinese imports late last week, ending a month-long trade truce.
On Friday, China vowed to fight back.
Spot gold rose 1.4% to trade at $1,460.11 per ounce at around 8:15 a.m. ET. It marked the yellow metal’s highest level since May 2013.