Yen, Gold ETFs Surge While Commodities Tumble
October 6th, 2008 at 3:00pm by Tom Lydon
The tide has turned for the Japanese yen as the credit market collapse is sending the currency way back up, and exchange traded funds (ETFs) will follow.
This same credit market collapse that sent Lehman Brothers down also sent borrowing costs sky high in Europe and is now beginning to unwind the carry trade.
Ye Xie for Bloomberg reports that after seven years of providing the cheapest source of funds for investors buying higher-yielding New Zealand dollars, Australian dollars and Brazil reals, the yen is appreciating as $584 billion of subprime mortgage-related losses force banks to restrict credit. The CurrencyShares Japanese Yen (FXY) is up 9.6% year-to-date
Likewise, the trend reversal is causing commodities to sink to the biggest annual decline since 2001, as investors leave leveraged bets and the slow economic growth is taking away demand for raw materials.
Shruti Singh for Bloomberg says the value of the 19 commodities in the Reuters-Jefferies CRB Index fell $280.6 billion, or 43%, from its July 3 peak, a loss larger than their total worth two years ago, data compiled by Bloomberg show.
Meanwhile, slower expansion in the United States, China and India is also undermining prices of crude oil, which fell 39% off the high, and corn, which is down 46%. Oil today closed down more than 6% to $88 a barrel, reports Matthew Robinson for Reuters.
The iShares S&P GSCI Commodity Indexed Trust (GSG) is down 13.3% year-to-date, and down 42% in the last three months.
The one commodity that is rising up amid the turmoil is a precious metal: gold. Gold prices rose 5% higher this morning, taking other precious metals with them, as the uncertainty is driving investors to a safe haven.
Jan Harvey for Reuters reports that spot gold has surged to its strongest level since late March. Investors are rushing to gold as the markets continue their turbulent and volatile ride, thanks to the ability of the metal to hold its value over time. Interestingly, the factors that normally push gold higher are heading lower, and risk aversion is what’s propelling it.
The SPDR Gold Shares (GLD) is up 12.9% year-to-date
Read the disclosure, as Tom Lydon is a board member of Rydex Funds.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.