Pro Perspectives 3/4/22

March 4, 2022

Despite all of the speculation about the dollar losing status as the world reserve currency … gold losing ground as the safe-haven … and Treasuries being penalized for reckless deficit spending, where does global capital flow when things really get dicey?  The dollar.  Gold.  And U.S. Treasuries. 

That's how we ended the week:  Flight to safety.

Let's look at some charts … 

With two valuation drivers at work (inflation and geopolitical risk) gold is back near $2,000, tracking toward the record highs set August of 2020.
And while gold typically rises, as the dollar falls, in times of global stress, they rise together.  Here's a look at the dollar …
And the dollar chart is mostly driven by this chart below (a slide in the value of the euro)…  
This is a key spot to watch (the euro) … where we may see some surprises bubble up in markets. 
The 2013-2014 Russia/Ukraine conflict resulted in a sharp slide in the euro, involving sovereign debt risks and (related) exposure of European banks to Russia.  This time, Fitch calls the bank risks limited (if not small).  But there are typically secondary risks in these environments that can bite — like a hedge fund counterparty default, which could create a shock event for the financial system.  Keep an eye on the euro.