An investment which will retain or increase in value during market volatility is considered as a safe haven. Gold is considered as a safe haven investment for decades since investors are attracted towards gold during the times of market turmoil.
Gold price is negatively correlated to US stock market performance. So, gold will be hedged against the market downturn to avoid loss.
Let us look at few historical events happened in the past
During 1990’s recession, S&P 500 slipped from 370 in July 1990 to 294 in October 1990. Gold price went up to $405 from $365 an ounce in the same time period. Even during financial crisis due to dot com bubble in 2000, S&P 500 dropped around 14% but gold price rose by 6% in that period. Lehman brothers collapse during 2008 also led to stock market crash. S&P 500 had a drop of around 50% in the period from September 2008 to March 2009. During this period, gold prices increased almost 11%.
Investors are tending to move for gold when they are experiencing financial crisis which in turn increases the demand for gold. As a result, gold prices go up. Therefore gold always becomes a safe haven investment for investors whenever market starts heading south.
Written by Sathiya Sundaram.
08 May 2020 05:21 PM
Converting one exchange rate into another at a particular price makes transferring rates. Ideally all nations should be treated as equal and there shouldn’t be any exchange rate applicable which would mean to have a universal currency.
24 Apr 2020 03:08 PM
Managing risk in a financial market is required to keep a check on the adverse movements in the instrument of the market. Particularly in the foreign exchange market.
10 Apr 2020 06:12 PM
So was India’s decision on locking down the country for 21 days required? The implication on the economic growth or rather slowdown has only made many doubt the timing and preparedness of the decision.
24 Feb 2020 05:08 PM
When they say the currency markets are volatile, it is the spot exchange rate, which is being referred to, which fluctuates within seconds.
07 Feb 2020 03:19 PM
Derivatives market enables access to financial assets for trading at a future date and not just at the market trading date. In currency derivatives the trader agrees to buy or sell a fixed amount of a specified currency at the end.
27 Jan 2020 02:13 PM
Well devaluing a currency can give a thrust to the exports and reduce the trade deficit but for any economy which has higher imports, the consequences can be on the negative too.