Why safe haven and defensive assets like gold are struggling

Market Realist

A key trend: Why relative value is trumping risk aversion (Part 2 of 5)

(Continued from Part 1)

Gold, a classic safe-haven asset, remains well below its spring highs, and certain defensive sectors — notably utilities, telecommunications and health care — have struggled month-to-date.

Market Realist – Gold (GLD), along with Treasuries (TLT), is often considered a safe haven asset for investors. So gold (IAU) recently climbed due to rising geopolitical tensions. But the climb was nowhere near the highs gold (GDX) saw in the first quarter of the year.

Gold futures marked their first weekly rise on a nearby futures basis in three weeks on August 8, 2014, as estimated by Bloomberg. Gold futures fell in the start of this week as geopolitical tensions eased a little. U.S. stocks (SPY) were bolstered by a news story from Moscow stating that Russia was looking at means to ease tensions with Ukraine.

December Gold futures fell by 50 cents to $1,310.50 per troy ounce on August 11, 2014.

Market Realist – The graph above shows the performance of gold as tracked by the iShares Gold Trust (IAU) over the year so far. As you can see, gold has risen in response to global tensions. But prices are still below the highs we saw in the first quarter.

Sectors that are often considered defensive—like utilities (XLU) and healthcare (XLV)—have been struggling in the past month. The Utilities Select Sector SPDR (XLU), which tracks the utilities sector, showed two-week returns of -4.04% and four-week returns of -2.48%. The Health Care Select Sector SPDR (XLV), which tracks the healthcare sector, has given two-week returns of -2.25% and four-week returns of -2.14%.

This shows that despite negative news, markets aren’t looking defensive.

Read on to the next part of this series to see why higher-risk segments are performing well.

Continue to Part 3

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