Gold, crypto and dollars as safe havens in turbulent markets
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.
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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