Why is gold considered a “safe-haven” asset? During an economic and/or financial crisis, an asset can be classified as a “safe-haven” if it is deemed safer and thus particularly sought after. Unlike other assets that see their prices decrease, the price of a “safe-haven” asset tends to increase during a crisis. Gold is considered the ultimate “safe-haven” asset because its return is little, if at all, statistically correlated to the return of stocks.
Is gold still a safe-haven asset? The price of one fine ounce of gold (31 grams) saw an increase of nearly 10% during the month of February 2022, marked by Russia’s invasion of Ukraine. Between January and August 2020, during the global recession caused by the Covid-19 pandemic, gold saw its price soar by over 20%. Gold prices also skyrocketed following the so-called subprime crisis in 2008 and public debts within the eurozone: between January 2008 and August 2012, the value of gold thus increased by nearly 100%.
However, gold is not an optimal safe-haven asset. It should be noted that the gold market is volatile and carries a liquidity risk. In addition, it is particularly difficult to predict the future evolution of the value of gold, as price declines can be rapid and unforeseen. Despite these risks, during times of crisis, investors and individuals seek stable and reassuring assets. Among the available options, gold is considered a unique and precious commodity. Indeed, gold is a limited and stable resource that cannot be created or destroyed like paper money. Therefore, gold maintains its intrinsic value even in times of crisis, making it a sought-after financial refuge during times of economic, political, or geopolitical uncertainty.
Adding gold to a stock portfolio can reduce fund volatility, thereby reducing overall risk. Individuals seem to be increasingly attracted to gold, as noted by Cédric Koczor, director of the company Loomis FCGS, which sells and stores gold for banks and savers: “We doubled our sales between February 24 and March 24.” The increase mainly focuses on coins and small bars, while large products like bars remain fairly calm in terms of sales. Indeed, the high cost of gold bars can deter investors.
Is Gold Still A Good Safe Haven Investment In 2023? Gold has been a sought-after precious metal throughout history. From ancient civilizations to modern times, gold has played a crucial role in human society, serving as a store of value, a currency, and a symbol of wealth and power. Today, gold remains a popular investment, a liquid asset that is actively traded around the world. In 2022, the gold price has remained flat, but it has outperformed other asset classes like bonds and stocks. While there is uncertainty surrounding geopolitical crises and macroeconomic situations, investing in gold remains an appealing option for those seeking a liquid and unique asset.
One of the key benefits of investing in gold is that it is a proven diversifier. Over the past 50 years, gold has had very low correlations to stocks and bonds, making it an appealing safe-haven asset. In times of market volatility, gold can provide stability to an investment portfolio, helping to mitigate risk and protect against losses.
Another benefit of investing in gold is that it is a good hedge against rising inflation. Gold has a long history of maintaining its value during periods of high inflation, making it a reliable store of value in times of economic uncertainty.
Despite these benefits, there is no guarantee that the price of gold will rise, and as with all investments, there are risks involved. However, volatile economic and political conditions tend to support the prices of gold, and gains have been checked due to a combination of factors such as interest rate hikes and the strengthening of the US dollar.