The market at a glance: Gold!

We hope you had a wonderful summer! For many, vacation now feels like a distant memory. And unfortunately, the financial markets aren’t making the return to reality any smoother. They seem to be competing with the weather to see which can be more unpredictable.

But don’t worry, we have reasons for you to feel optimistic!

On our end, our efforts are beginning to pay off. We’ve been recognised by moneyland.ch as the leader in cost-effective asset management services among Swiss banks. This recognition reaffirms our mission to make premium financial services accessible to everyone, and we couldn’t be prouder!

But affordability is only part of the story. Over the past two years, we’ve also outperformed the average Swiss asset manager (according to Performance Watcher) across most risk profiles.

And that’s not all—we have two more news for your wealth, which we’ll save for the end of this newsletter.

Now, let’s turn to the latest financial news, and I’ll pass the pen to the newest member of our investment team.

The market at a glance: Gold!

Hello everyone, this is Hugo, the newest member of the Investment team. For my first month at Alpian, I challenged myself to write this newsletter, and I hope there will be many more to come!

Despite the holiday season, August was anything but restful. Volatility impacted global equity and bond markets. Even though things started off rough, the major indices managed a solid comeback by the end. And in the turmoil, one asset shined: Gold, which is why it deserves a bit of focus in this newsletter.

In 1983, while the price of the precious metal posted a modest decline of 1.2% for the year, Spandau Ballet was singing "Gold," a tribute to resilience and timeless value.

These qualities particularly resonate today with those holding gold assets. With prices flirting dangerously close to $2,500 an ounce, the precious metal hit historic highs.

This meteoric rise confirms a record year for gold, with an impressive performance of nearly 23% since the start of the year. This surge raises some questions: What does the future hold for it? Will September be just as golden, or will gold stabilise after this historic spike? And what does this imply for the rest of the markets?

Key takeaways

• Equity markets broke the norm of a calm summer, dropping nearly 6% in the first week before recovering.

• Bond markets got a nice boost following the near-certain announcement of a Fed interest rate cut.

• Commodities struggled, but gold shined brightly amid uncertainty.

• Cryptocurrencies faced challenges, with Bitcoin dropping over 10% this summer.

What happened with equities

Summer is usually a calm period for financial markets, but this August broke the norm.

In the very first week, the U.S. market of the 500 largest capitalisations dropped by nearly 6%. The S&P 500 index fell by 3%, marking its largest one-day drop since September 2022.

It’s always hard to pinpoint a single culprit, but we can analyse two key suspects:

1. A higher-than-expected rise in initial unemployment claims suggested that the increase in interest rates is starting to weigh on the U.S. labor market.

2. The “carry trade” strategy, widely used on Wall Street.

The unusual summer can also largely be explained by the performance of companies like NVIDIA, Walmart, and Apple. Take Walmart, for example. A closer look reveals an economic picture that might surprise you:

Walmart raised its full-year sales forecast, driven by strong demand for essential products. They even raised their revenue and profit forecasts.

So why all the optimism despite economic uncertainty and high interest rates?

Investors are looking for answers by closely examining corporate results, and Walmart offers a good insight. American consumers, facing an uncertain future, are becoming more cautious. Instead of spending on big projects or travel, they’re focusing on essentials: food, basic products, and everyday necessities. This cautiousness is supporting Walmart’s performance and speaks volumes about the current mindset of American households.

In summary, the upcoming period for financial markets could be quite turbulent: Potential interest rate cuts by central banks, ongoing geopolitical conflicts, and the looming U.S. elections all add to the uncertainty. That’s why, at the beginning of August, we adopted a more cautious approach within our portfolios to navigate this period.

What happened with bonds

With the near-certain announcement in August that the Fed will likely lower interest rates this fall, there's a strong chance that bond prices will get a nice boost.

Government bonds remained flat in August, but corporate bonds rose by about 1.5%.

Looking ahead, a reduction in key interest rates typically leads to lower bond yields. As a result, previously issued bonds become more attractive, as they offer higher yields compared to new issues. That’s great news for those who already hold bonds, as their portfolios could see an increase in value.

However, for new buyers, bonds with lower yields may lose some of their appeal, possibly pushing some investors toward riskier investments to seek better returns. This could add some volatility to the markets, especially with ongoing geopolitical tensions and the upcoming U.S. elections.

In short, if the Fed and other central banks lower rates, the bond market could see a short-term boost, but caution is advised regarding future yields and market stability.

What happened with commodities, currencies, and digital assets

While financial markets were going through a turbulent period, gold reached new highs. This impressive surge is the result of a combination of factors: ongoing geopolitical tensions, particularly in the Middle East, and investor concerns about global economic stability. The idea that central banks, especially the Fed, might soon lower interest rates has also increased gold's appeal as safe heaven, driving its price upward.

But can we still confidently call gold a "safe heaven" today? Sure, gold is less volatile than the stock market in general, but it doesn’t always deliver when you need it most.

Over the past 100 years, the probability of gold rising while stocks falling is only 43%. In other words, gold isn’t exactly the superhero we hope for during a crisis. Plus, the factors that influence its prices are as clear as mud. Supply and demand fluctuate constantly, often balancing each other out, which makes reading the market tricky.

So, why have we included gold in our portfolios? Because we believe we’re entering a period where several indicators could shake up the global economy: upcoming central bank policies, persistent geopolitical instability, and the risk of inflation returning. All these factors could continue to influence the gold price.

On the cryptocurrency front, Bitcoin was the big loser, dropping by over 10%. It got pulled down along with the stock markets and concerns about a potential recession in the U.S. But what’s interesting is that this decline was amplified by large speculative moves. In short, it’s mostly a technical story—nothing too dramatic.

Overall, this summer defied expectations in many ways, and September is off to a shaky start. However, we have many reasons to remain optimistic: the playing field for investors has expanded, offering a wider range of options to choose from. In a sense, diversification has become easier, and it would be a pity not to take advantage of it while waiting for brighter skies.

Demystification room: Did you say “carry trade”?

Have you ever wondered why the Japanese yen plays such a central role in global financial strategies? This month’s fluctuations in the yen have demonstrated their ability to influence global markets, leading to notable movements in equity markets. The persistent weakness of the yen, largely attributed to the ultra-loose monetary policy of the Bank of Japan (BoJ), has increased the appeal of the “carry trade”, a strategy favoured by investors.

So, what is the “carry trade”, and why is the yen so crucial to this strategy?

In short, carry trade involves borrowing in a low-interest currency, like the yen, to invest in higher-yielding assets in other countries.

Japan, with its historically low interest rates, is an ideal source of funding for these transactions. The Bank of Japan has maintained these low rates for a long time to stimulate the economy and counter deflationary pressures. As a result, the yen becomes the currency of choice for many investors seeking to maximise their profits with higher returns than those offered by the Japanese market.

Let’s take an example to make it more concrete: Imagine an investor borrows yen at a very low rate to buy U.S. bonds yielding 4%. The difference between the low borrowing cost in yen and the higher return on U.S. bonds constitutes the profit. If the yen remains stable or depreciates, it’s all gain! This strategy becomes even more attractive when the interest rate differential between the two currencies is significant, as is often the case with the yen.

However, this strategy is not without risks. Nothing is ever simple in finance!

Recently, the Bank of Japan surprised everyone by raising interest rates, from -0.1% to 0.25%. A small change that nonetheless triggered waves of disengagement from the carry trade, leading to a rapid rise in the yen.

The consequences were swift: the valuation of yen-financed investments dropped, contributing to the decline in the S&P 500 in early August. Some of this impact has since been recovered, but the example is striking.

The main danger of the carry trade lies in the volatility of exchange rates and the unpredictable decisions of central banks. A sudden appreciation of the borrowed currency can turn potential profits into significant losses. Similarly, an unexpected change in monetary policy—such as a rate hike—can quickly reverse expected returns. And when investors rapidly unwind their carry trade positions, the shockwaves on the markets can be severe.

This phenomenon reminds us of an important reality in global financial markets: what seems like a small adjustment in local monetary policy can have repercussions far beyond national borders. A simple interest rate change in Japan can affect investors worldwide, trigger movements in equity markets, and even influence economic decisions elsewhere. It's a true butterfly effect in action.

Thus, this situation clearly shows the importance for investors to stay vigilant regarding central bank policies and global economic conditions. In such an interconnected financial environment, staying informed—for instance, by following our newsletter—is a great way to better understand and anticipate international market developments.

More for your wealth! Latest updates from Alpian.

At Alpian, we are firm believers in the “slow and steady wins the race” approach. Wealth is built over time, sometimes across generations, and our role as a bank is to support you on that journey.

The obstacles are numerous: inflation, taxes, and sometimes unpredictable financial markets. But there’s one thing we can control—fees. While banking services come with costs, we believe in a fair and transparent business model, and this principle is at the core of Alpian’s foundation. Today, we are excited to do even more for you:

No more account management fees: We listened! Thousands of you responded to our survey and expressed the desire for a completely fee-free banking account. We're happy to announce that we’ve removed all account management fees.

Competitive interest rates: We continue to offer interest rates above 1.0% on cash accounts (with monthly credited interest) for balances above CHF 100,000. For lower balances, our interest rates remain among the most competitive in Switzerland, with no strings attached. We've also introduced positive interest rates on EUR (1% up to EUR 500,000) and USD (1% up to USD 100,000).

New investment opportunities: Soon, we’ll be launching a new investment offering starting at CHF 2,000, designed to help those who want to explore investing take that crucial first step.

We deeply appreciate your candid feedback. We’re here to help you save, invest, and manage your money more efficiently than ever before. And we’re always just a click away. Don’t hesitate to reach out to our Banking Specialists via chat or book a meeting with one of our Wealth Advisors to review your financial situation and discuss your aspirations.