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BlackRock: Risk aversion obscures market realities

Investment news for financial advisers

12 Aug 2014

Global Market Analysis

The risk-off tone in global markets has continued over the past week, with equities down by around 1%, taking the drop from the recent peak to 4%. Things would have been worse still had it not been for a 1% rally in the US on Friday. Other evidence of the risk-off tone is the downward drift in high-quality sovereign bond yields, a widening of sovereign spreads in the euro area and the downward move in commodity prices. 

This is hardly a major panic; markets have dropped by much more over shorter periods in the past, while market volatility – as measured by the VIX Index – has risen back to normal but is far from being indicative of broad stresses. 

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Precious Metals Update

The gold price rallied nearly 2% in the second half of the week on further geopolitical tension – notably Russia’s retaliation against international sanctions (the introduction of food import restrictions) and President Obama’s decision to authorise US forces to launch selected airstrikes in Iraq. Global equity markets also fell, which lent further support to gold. It is worth pointing out though that such geo-politically driven moves in the gold price have been seen quite frequently this year but the market has struggled to hold onto the gains made at these times. As a result, gold has traded in a relatively narrow range around the $1,300/oz mark over the last four months. 

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