Securing assets has always been number-one goal during crises. This is something that worries borth financial experts and plain folks who are far from the peculiarities of the financial world but who are still witnessing their savings vanish amid inflation and devaluation.
Gold has always been considered a safe-haven asset for those who want to prevent their capital from devaluing. You are probably aware of the fact that international governments and central banks conduct reforms, denominate currencies, print money to boost inflation, deprecated some old currencies and create new ones, but gold remains the standard of value of centuries, even millennia.
2008-2009 Crisis And Gold
The global financial crisis that took place more than a decade ago, triggered a major rally in the gold market, pushing the gold price from 600 dollars in 2007 all the way up to 1800 dollars on 2011.
The correction started only 2012 when investors were convinced that the global economy had fully recovered. However, even under such circumstances the price of gold still remains over the level of 2007.
COVID-19 Pandemic And Gold
The year of 2020 started with an economic crisis triggered by the coronavirus pandemic. The business activity around the globe was frozen. The countries are isolated and trying to minimize the impact. Amid such conditions, the futures of gold started going out of the flat market it had been staying in since 2013.
In late February - early March the markets witnessed a major asset sellout, with gold seeing a considerable correction. The reason was similar to the one on 2008 - a lack of liquidity. The players with opened marginal positions started reducing their exposure to the market to avoid losing everything upon margin calls. Institutional investors reacted as well. The market crash forced them into selling both risky and safe-haven assets.
The Fed and other central banks around the world took urgent steps, which helped a bit but didn't solve the problem. In particular, save-haven assets started recovering. Hedging assets regained their popularity as well.
Gold As An Alternative Currency
Extensive money printing around the world triggered high volatility in the market of EUR/USD, the key forex currency pair. That is why gold turned into one of the very few (if not the only one) alternative international currencies, which apparently boosted the demand for gold.
According to Ray Dalio, a legendary investor and the founder of the hedge fund named Bridgewater Associates, gold has been a reserve currency for millennia. He predicts gold to hit 2000 dollars per troy ounce. Citi Bank shares this prediction.
Gold and other precious metals are great assets to hedge against stocks. While investors are unwilling to risk, the demand for gold remains high. How long is this going to last? Nobody knows.
Other Safe-Haven Assets
Apart from gold, the international community of traders and investors considers the following assets as safe-haven assets:
the Japanese Yen, the Swiss Franc, U.S. T-bonds, other precious metals like silver, platinum, palladium.
U.S. T-bonds (treasury bonds, treasuries) are included in thousands of investment portfolios all around the globe. They make a considerable part of central bank reserves around the world. 10-year T-bonds are the most liquid ones. They have been behaving similar to gold. Still, you should keep in mind that T-bonds are good for long-term investing while shorter-term investing needs thorough research and testing.
JPY (yen) and CHF (franc) are safe-haven assets as well. The currencies are often used to hedge risks. Still, these are fiat money, which is why they don't have considerable competitive edge over other currencies. That's probably the reason why most international investors are not using them right now.
Bitcoin. Gold Alternative or HYPE?
The current crisis seems to be changing investors' attitude to Bitcoin. Previously, it used to be treated as a speculative asset, but today starts to bee seen as a real alternative to fiat money. Chances are, the changes are backed by the fact that cryptocurrencies have become more available and affordable. In particular, BTC futures are now traded on CBOE and CME, and the infrastructure has been growing.
The Bottom Line
The current crisis has already shown us that all safe-haven assets can be useful for hedging to some extent. Even though gold is the king in this aspect, Bitcoin has considerable potential as well.
