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Last week we covered the risk curve and how investors shuffle along it depending on the broader environment and the prevailing risk reward appetite across markets.
We highlighted how investors initially rotated into gold as geopolitical fears resurfaced. Now that the conflict is well and truly underway, capital has moved even further down the risk curve into cash and bonds.
Cash and bonds are where capital flows when markets shift completely risk off. These sit at the very end of the risk curve. We have seen this rotation accelerate as the week has progressed, particularly overnight.
Risk on assets fell, which should surprise no one. The S&P 500 and Nasdaq both dropped around 1%, while Bitcoin held up relatively well, down just over 1%. The real shock over the last 24 hours has been the safe haven complex. Gold is down nearly 5% and silver over 8% in the same period.
As investors move to the end of the risk curve, cash and the US dollar are absorbing the majority of flows to start the week. The US Dollar Index is green on the week, while bond yields have also pushed higher, with the US 10 year rising nearly 3% and the 30 year up close to 2% as markets price in greater uncertainty.
This is a clear signal that investors have, for now, lost their appetite for any risk, likely driven by uncertainty surrounding the ongoing conflict. However, this rotation creates strategic opportunities for those looking to accumulate PAXG or Bitcoin during these conditions.
Iran has announced the Strait of Hormuz is to be closed. We previously covered the potential repercussions of such a move. The immediate reaction has been sharp, with crude oil up another 7% and Brent up 5%.
Now attention has shifted to Iran. Some market participants speculate that increased US pressure in the region could again be framed around influencing energy markets. However, the immediate market reaction tells a different story.
Oil has spiked sharply. US crude settled up 6.28%, at $71.23 a barrel, while Brent closed at $77.74, up 6.68%. The Strait of Hormuz is now central to the discussion. Iran effectively controls this passage, and roughly 20% to 30% of global oil supply moves through it. Any credible threat of disruption feeds directly into risk premia across energy markets.
Stormrake Spotlight: Pax Gold (PAXG) ($5,116)
Stormrake Spotlight: Pax Gold (PAXG) ($5,116)
