- Gold price dropped by 4% as U.S. stock market hit record highs.
- Major U.S. banks including JPMorgan and Citibank closed positions on gold for more risky alternatives.
- Nobel laureate says geopolitical risks are over-estimated, making the environment better for stock market over gold.
In previous weeks when the Dow Jones demonstrated promising upside movements, gold continued to rally, as investors were cautious about various geopolitical risks that posed a threat against the momentum of the equities market.
In the past two weeks, the spike in the Dow Jones from 27,046 to 27,681 points coincided with a noticeable drop in the gold price, indicating that investors are moving out of the safe haven asset market to re-enter the equities market.
Big investors are moving away from gold to more risky options
Some of the world’s largest banks by market capitalization including JPMorgan and Citibank have closed their positions on gold as the sentiment around the U.S stock market improved.
JPMorgan strategists Marko Kolanovic, Nikolaos Panigirtzoglou and John Normand named cyclical recovery, lessening geopolitical risks, increasing monetary easing from central banks, and more investors on the defense as the main reasons behind their change in stance towards gold.
Term premiums for bonds have started to decline as well, which historically have indicated a sell-off for bonds, sending a “red alert” to investors in the bond market.
Roberto Perli, a partner at Cornerstone Macro LLC, told Bloomberg:
Term premium was extremely depressed due to trade uncertainty,