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How Geopolitical Tensions Could Affect Safe-Haven Assets

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Apr. 16 2018, Updated 8:10 a.m. ET

Geopolitical concerns resurface

Geopolitical risk has been one of the major drivers for equity markets and commodities lately. In the latest development, the US, France, and the United Kingdom launched military strikes on Syria over the weekend. Since the strikes were surgical and the pullback was prompt, risk assets haven’t seen much impact from the strikes yet. However, another round of strikes or Russian retaliation could put the markets in risk-off mode.

In the week ahead, the market will await response from Syria and Russia. Further escalation could turn investors towards gold and other safe-haven assets including the Japanese yen.

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US sanctions

The United States has also imposed sanctions against some Russian entities. Among the targeted companies is RUSAL, which accounts for ~6% of global aluminum production. Kinross Gold (KGC) stock fell ~9% on April 9, 2018, in reaction to the fresh US sanctions on entities in Russia (RSX). Kinross Gold was punished mainly because of its exposure to Russia through two of its mines. These mines are expected to contribute ~20% to its production in 2018. However, most of the other gold miners (GDX) including Barrick Gold (ABX), Newmont Mining (NEM), and Goldcorp (GG) gained from these uncertainties.

Risk assets and risk-off assets

Commodities have been quite volatile this year amid the US-China trade war and escalating geopolitical tensions. At times, gold prices have risen amid these concerns. The risk assets, on the other hand, have faced losses. The SPDR S&P 500 ETF (SPY) is down 0.24% so far this year compared to a 19.4% gain in 2017.

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