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.
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