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1. Safe-haven. Since the collapse of Lehman Brothers in September 2008, systematic risks of financial systems have emerged. Although Governments all over the world have pledged numerous bailout plans and nationalizations of financial institutions, investors probably lost confidence in it. Rather than putting money in equities, fixed income products or even in savings deposit account, they preferred some hard assets which offered store of values. Demand for gold coins evidenced investors' seek for safe haven as gold coins are portable but trading as a premium to gold bars. Normally, gold coins trade at a 5% premium but since 2H08, some 10% premiums were being paid. In the US and the Western European, demand increased significantly.
2. Long-term Inflation. The cost of bailouts, nationalizations and decline in tax revenue increased the risk of long-term inflation. Although recent inflation reports were weaker than expected and many analysts talked about deflation, investors have started to worry about inflation in the long run. US yields indicated that inflation expectations have increased over the past few months. The spread between 10-year T-notes and TIPS rose to 1.15%, compared with -0.08% in November and 6-month average of 0.95%.
3. Increase in default in sovereign debts. In the past, economists and investors seldom paid much attention to sovereign credit-default swaps. However, after the bankruptcy of Lehman Brothers, credit markets started to tighten. Capital injections to large financial institutions have put sovereign debts at risk. Investors now use CDS spread to predict movements of currency pairs. For instance, previous decline in British pound was accompanied with rapid rise in CDS of Britain sovereign debt. The Japanese yen fell sharply last week, the CDS of its sovereign debt also rose markedly as Japan recorded a decline of 12.7% yoy in 4Q08 GDP.
