Gold, crypto and dollars as safe havens in turbulent markets

Gold, crypto and dollars as safe havens in turbulent markets

27 August 2019 from Mikael Syding

The stock markets have been volatile this year. For those who have had a positive position, it has been extra heavy from May onwards. At the same time, gold has not only served as a stable place to park your money, but has actually appreciated sharply in May to August. Gold was always considered the ultimate insurance against turbulence, whether due to a deflation crash or inflationary turmoil.

Then a debt-driven economy slows down and forced sales hit other risky assets, gold is one of the few manageable real assets without a counterparty, which is why capital takes flight to gold when investors see the storm clouds at the horizon, for example, as now in the form of an inverted yield curve. The great thing about gold is that the other extreme too, inflation, has a positive effect on gold's price in fiat currency. This means that when central banks lose control and quickly turn from interest rate hikes to interest rate cuts and back again in increasingly desperate measures, gold acts as protection against both extremes.

However, gold is less interesting in the quiet Goldilocks periods in between. However, it is important to accumulate gold before the panic strikes in earnest, for the total value of all gold
today constitutes only a few percent of the total asset markets, so relative prices change quickly when shares, bonds, fiat currency and other assets are to be shifted into gold. You may look a little silly for a while when collecting yellow stones in the portfolio before the crisis arrives, but rather before than afterwards.

The digital gold in the form of Bitcoin has also developed strongly since the stock market
peaked in May. Bitcoin has doubled from about $ 5,000 to today's $ 10,000. During July and August, the price has risen, or consolidated, with the round number $ 10,000 as the bottom. Judging from previous plateaus, it seems about time for the cryptocurrency to decide on the next significant step. Given the growing risk of recession and more worry in the stock market, as well as the upcoming "halving" of Bitcoin mining in May 2020, I think we will see renewed buying pressure in Bitcoin. Cryptocurrencies may not be the first thing to think of in the context of “secure assets,” but when central banks and states engage in currency wars and failed states such as Argentina and Venezuela go for capital control, cryptocurrencies could work better than even gold as a safe, value-preserving asset.

In addition to gold, the US dollar, mainly through the purchase of government securities (bonds), has long been the main refuge when the world is trembling. Through the purchase of the DXY dollar index, a Swedish investor gets a double currency effect: the upturn of the index itself, which measures how the dollar develops against a handful of other currencies and the upturn of the USD / SEK currency pair. Calculated in USD, the gold price usually is weak when the DXY is strong, but lately that pattern has been broken, and the gold price in dollars has been strong despite a rising DXY. As a result, over the last year, both the currency pair USD / SEK and the gold price in USD have gone up significantly, which means that gold investors in Sweden over the past 12 months have been paid to dare to stand on the sidelines of the stock market.

Gold, cryptocurrencies of various kinds and dollars certainly seem to do a good job when Trump, Powell, Xi, Boris Johnson and other powers that make a mess of things. Are you properly positioned and "antifragile," as Taleb calls it, when the storms arrives?


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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

26/11/2022 10:29:00


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