Gold hasn’t been acting like itself lately

0:28Today's markets move fast. Good morning from the Financial Times. Today is Wednesday, March 25th, and this is your FT News Briefing. The chip industry just got a little bit more competitive, and investors are ditching a safe haven asset at an incredibly surprising time. Plus, we'll take a look at why Lebanon is bracing for a land offensive from Israel. I'm Mark Filippino, and here's the news you need to start your day.

1:04The chip designer ARM is now the chip maker ARM. The company's CEO, Rene Haas, unveiled its new AI processor yesterday. He called it a defining moment for the company, and it's hard to argue with that. ARM is known for designing chips for other companies. Now it's producing them itself. And the move will put the company in competition with some of its own customers like Google, NVIDIA, and Amazon. ARM already has some companies lined up to buy its chips. It says Meta will be the lead partner for its processor. Another early customer is chat GPT maker OpenAI. Now, there are pros and cons to ARM's move.

1:41Analysts say that producing its own chips will probably create much higher revenues, but moving into hardware will likely hit its gross margins, which are some of the tech industry's highest.

1:58You probably remember me saying on this show, maybe hundreds of times, that gold is a safe haven asset. Investors look to it when the world is upside down and they need a little comfort. Well, the world is upside down and gold isn't really doing what it's supposed to. Here to unpack this yellow mystery is the FT's U.S. financial commentator, Rob Armstrong. He writes our unhedged newsletter. Hi, Rob. Hi, Mark. So just a little background. Gold was near an all-time high right around the time the U.S. and Israel began their strikes on Iran at the end of February. Gold has fallen off a cliff since then.

2:33Seems like it should have done the complete opposite of that. It's been pretty surprising. But the old cliche is that finance is a game that you win or lose on the first tee. I guess that's a golf metaphor. meaning the price you pay going in matters a lot. And the price of gold was really high. So maybe at these kind of perilous highs, gold acts a little bit differently than it does when it isn't quite so expensive. And what can we attribute that rise in gold to, Rob? I think in the astonishing run, which began about the start of 2024, there was an evolution of who the key buyers were over that time.

3:23The standard theory of the early days in 2024 is that central banks, who were worried about being too dependent on the U.S. dollar as a reserve asset, started to accumulate more gold. So that was a new source of demand that pushed the price up. But after that, more retail investors were also interested. So investments behave very differently depending on who their investor base is. Do we have any prevailing theories on what might be knocking it down now? It is part of a larger pattern we've seen since the beginning of the war in Iran, which is that it has not been so much that people are selling willy-nilly and getting rid of risk everywhere and anywhere.

4:08There's been a pattern where the very assets that did the best over the months or years running up to the war have been the ones that have sold off the hardest afterwards. And this sort of makes sense. if the world becomes an incrementally more unstable, uncertain, and frightening place, you can understand why an investor, whether retail or institutional, would look at their portfolio and say, maybe it's time to take some of my winners off the table and lock some stuff in. There is also a question, though, I should mention that we may be seeing a small reversal of the central bank buying of gold.

4:50Yeah, and we've actually seen a few cases of that. Poland is proposing something along those lines, and there are reports that Turkey's central bank is too, right, Rob? Yeah, and in a world where oil, which is priced in dollars, gets more expensive, countries that import a lot of oil, and Turkey is one of those, and needs to buy that oil in dollars, will be keen to defend their currency from weakening. And one way to do that is for the central bank basically to buy their own currency and sell dollars. Well, to buy their own currency, they need some currency. And one way to get it is to tap into those gold reserves.

5:31So it makes sense for that reason that central banks might be selling a little bit of gold. Now, I know this is kind of a heavy question, Rob, but do you think that gold is undergoing a fundamental change away from its safe haven asset status? Gold has been through a lot over the last, oh, call it 10 ,000 years since people start using it as a source of value. And I would sort of circle back to the point I began with, which is that if you drive the price of anything up far enough, it starts behaving a little bit funnily. But, you know, if the price settles down a little bit or other prices catch up with the gold price, then I think we could see gold return to its historically normal role in our financial system.

6:21That's the FT's Rob Armstrong. If you want to hear more from Rob, he hosts the FT's Unhedged podcast with our colleague Katie Martin. We'll have a link to that in the show notes. Thanks, Rob. Thank you.

6:38Volkswagen could switch production at its factory in Osnabrück, Germany, from cars to missile defense. VW is in talks to make components for Israel's Iron Dome air defense systems. That's according to people familiar with the plan. Profits in the German car industry have plummeted lately because of rising competition from China and slow transition to electric vehicles. But the defense sector, on the other hand, is booming. The goal is to save all 2 ,300 jobs at the Osnabrück plant, which has been on the verge of closing. Now, VW already makes military trucks, but the partnership would be a major return to weaponry for the company.

7:15It produced the V1 flying bomb for Hitler's military during the Second World War.

7:26The war in the Middle East is sprawling, and now Lebanon is worried that Israel is gearing up for a full-blown ground invasion. Israel has been hitting civil infrastructure and evacuating more and more areas in southern Lebanon, and the violence displaced nearly a million people in a matter of weeks. I'm joined now by the FT's Raya Jalabi in Beirut. Hi, Raya. Hi. Can you give us an overview of what's been happening in southern Lebanon over the past couple of weeks? Because it's been really intense. It has been. It was a rapid descent into war. So the US and Israel launched their war on Iran on February 28th, which was a Saturday.

8:03By Monday morning, Lebanon was also plunged into war. That was the result of Hezbollah, which is an Iran-backed militia group. They decided to launch rockets at Israel in solidarity with Iran. And for much of the past 18 months, Hezbollah has been restrained and they hadn't really participated in any conflict against Israel, bearing in mind, of course, that they had fought a war against each other in the fall of 2024. So the status quo was broken on that Sunday evening. And as a result, the Israelis retaliated. So you had heavy bombardment of Lebanon's south, which triggered mass waves of displacement.

8:38And then you also had bombardments across Beirut in the southern suburbs where Hezbollah has a historic presence. You've also got almost 100 ,000 troops that have amassed, Israeli troops that have amassed on the southern border of Lebanon. Israeli officials are saying that they intend to move into Lebanon. So this would be a full-scale invasion of southern Lebanon, a potential occupation. And it has Lebanese across the country worried about the future. And they're worried about the future because they've seen what's happened in the past. What's the context of this conflict? So this wouldn't be the first time that Lebanon would be invaded and occupied by Israeli forces.

9:16In 1982, this happened. You had the PLO, the Palestinian Liberation Organization, that was based in Lebanon. And so Israeli forces went all the way up to Beirut to oust the PLO and kick them out of Lebanon. The Israelis, while they did withdraw from the capital, they maintained an occupation in southern Lebanon until the year 2000. Some people would say it triggered the rise of the Hezbollah militant movement, which was founded, it says, as a sort of resistance to Israeli occupation. So the occupation, it lasted a long time. It really changed the nature and character of Lebanon's security landscape at the time and really shaped people's sense of what it means to be Lebanese.

9:58It fractured the state in many ways. Raya, like I mentioned earlier, around a million people have been displaced from southern Lebanon. How is the rest of the country handling that? What does it look like? It's incredibly tough for this country. It's been suffering under the weight of a brutal economic and financial crisis for most of the past five, six years at this point. So now you've got a million people that are out in the streets. The country is broke and can't really afford to take care of them in the way that it should. But a lot of them have ended up sleeping rough on the streets of Lebanon.

10:29And it's important to note that this country is fractured when it comes to sort of sectarian and communal tensions. And so there is a suspicion that a lot of the people who have been displaced who come from the Shia Muslim sect, they are viewed with a lot of suspicion by the rest of the country because they're seen as supporters of Hezbollah. And there is this fear that wherever those people go, that they might be bringing with them Hezbollah fighters to these neighborhoods. And that could make them a target for Israeli airstrikes. and we're seeing people just being kicked out of neighborhoods where they're trying to seek shelter.

11:02Given this tension, what's the path forward here? Or is this outcome of this conflict dependent on the outcome of the U.S. and Israeli war with Iran? From everyone I'm speaking to, it's just abundant and clear that it's very hard to see a way out at this point. And diplomats, officials, everyone I'm speaking to seems to think that this conflict is going to outlast the one in Iran. Israel has been threatening since the last war that it was going to come in again and disarm Hezbollah if the Lebanese government wasn't going to do it themselves. But fundamentally, it just can't. Its army isn't strong enough to do that.

11:36And even if it did, then that could cause a huge amount of civil strife because you have a lot of people in the army who are somewhat sympathetic to Hezbollah and doesn't want to be engaged in a conflict against their sort of countrymen. So meanwhile, the Israelis seem very adamant on moving deeper into Lebanon and quite unquote destroying Hezbollah itself. and it's hard to see a path forward that doesn't end in an absolute full-scale war. Raya Jalabi is the FT's Middle East correspondent based in Beirut. Thanks, Raya. Thank you. You can read more on all these stories for free when you click the links in our show notes.

12:10This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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