Is Gold still the safe haven it once was? Especially since the crypto boom!
Gold or Crypto?
In the world of finance, nothing is ever straight-forward, there are twists and turns and bumps on the road that can cause problems. Sometimes there will be periods of panic where banks, traders and investors will have to react quickly and move their money to a safe environment to protect themselves from a disaster. The safe environment is known as a safe haven, and one of the most popular safe havens is Gold. This precious metal became an object of desire back in ancient times when traders could acknowledge its beauty and value, and this became an object which could be used to facilitate transactions.
Another popular safe haven asset is actually the Japanese Yen, because it has so much internalized debt, that if the central bank were to ever pull the rug from under itself, the entire japanese economy would come crashing down, so it’s always pumped up and is even more elevated in times of a crisis.
Many people accepted the fact that gold has established itself as a safe haven, mainly because of its history as a hedge against inflation and it’s not at risk of becoming worthless any time soon. So in the event of a crisis, say a recession like in 2008, when markets fell and looked like there was no way back, investors would have moved their money into Gold.
You can see from this chart on a monthly timeframe, the price of gold skyrocketed from 2009 all the way into 2012. The price of the precious metal had soared to its highest levels ever! So many people had the same idea during the housing crash of 2008, and moved their money into gold because of its intrinsic value.
We’ve seen an example of the precious metal being used to protect investors from crashes and apocalypses but is gold still as good as it used to be?
The main appeal of a “safe haven” is that it doesn’t depend on anyone else. But the main drivers of the gold price seem to be retail demand, both here — through exchange traded funds such as the SPDR Gold Trust and in emerging markets. And that, too, means it is more likely to be volatile than “safe.”
The further the gold standard recedes into history, the less investing power the asset actually has. Gold has become less of a crisis insurance policy as time has gone on, and it wasn’t the best to begin with. When the stock market crash of 1987 occurred, gold only appreciated in value by 5%, and during the financial crash of 1998 the metal only rose a mere 2%.
One thing investors seemingly overlook when thinking about gold as a safe haven, is that fact that it won’t protect you if the entire economy collapses. If this were to happen, then gold would have no use. The precious metal still has its uses with the likes of expensive jewelry on the high street, and it might be for the best if it stays in the high street. Gold as a safe haven might not be the best backup plan in the future if an economic disaster ever happens again.
Crypto however... :)
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