Standard Chartered told clients in a note that the U.S. dollar and Japanese yen may be the most appealing safe-haven currencies if gold extends its recent retreat. Analyst Steve Englander highlighted that gold is trading well below $4,000 an ounce and described the metal as technically fragile in the near term.
Englander pointed to the next areas of potential support for gold at $3,800 and $3,500 an ounce. He said selling pressure has been prompted by a combination of technology-sector jitters, equity market declines and liquidity needs that have encouraged investors to divest highly liquid assets, including gold and silver.
"In the short term, gold's role as a liquidity provider and the need to generate cash are likely to overshadow its role as a safe-haven asset," Englander wrote.
The analyst noted a strong negative correlation between gold and the dollar over the past year, which he interpreted as evidence that investors may previously have sold dollars to acquire gold. Englander added that this directional flow could reverse if gold continues to be sold.
"We expect the USD and JPY to outperform if gold keeps falling," he said, identifying those two currencies as the likely beneficiaries of any further risk-off moves that involve selling of precious metals.
Standard Chartered also assessed the broader safe-haven landscape and concluded the list of attractive alternatives has narrowed. The euro, the bank said, is hampered by political and fiscal uncertainty. The Swiss franc is characterized as the lowest-yielding G10 currency, while sterling is affected by its own political questions. The Australian dollar, the bank noted, shows considerably higher volatility than the other options.
"So the USD stands out if gold is sold in risk-off circumstances," the note said, underscoring the dollar's relative appeal amid those constraints.
Englander suggested that central banks seeking to reduce dollar exposure might consider the yen. He pointed to a recent pickup in Japanese government bond yields as a factor that should make the currency more attractive, and noted the yen's low beta, relatively low valuation and restored yield as characteristics that could help it benefit if risk-off conditions are driven by asset-market pressures rather than oil-related shocks.
Market data referenced in the note included moves across a number of pairs and instruments: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, XAU/USD, XAG/USD and related measures of gold and silver.