Safe Haven Asset

Safe Haven Asset

In the investment world, Safe Haven assets are assets that are known to be unrelated or have a negative relationship with assets or other investment portfolios when there is chaos or uncertainty in the financial markets. Therefore, assets belonging to Safe Haven assets are considered to protect investors from the financial crisis. Safe Haven’s asset value is expected to survive and even increase when market conditions experience shock or when other investment assets decline.

Are Gold Classified as Safe Haven?

The precious metal of gold has been trusted by most market participants as a Safe Haven asset. Unlike money or other assets, this gold does not risk losing its value amid financial or political uncertainty. In fact, gold in your investment portfolio can help to reduce losses when the stock market collapses. Some analysts also advise investors to buy gold precious metals when other investment returns are negative.

Therefore, given that gold has a reputation as a Safe Haven asset, people in droves are rapidly turning to gold assets in line with the occurrence of price volatility in unfair financial markets. A study has proved that the assessment of precious metals gold as a Safe Haven asset is true.

Research About Gold As Safe Haven Asset

Two Irish researchers, Sile Li and Brian Lucey, have just published a scientific article about the role studies of precious metals as a Safe Haven asset. They found the role of gold precious metals as a Safe Haven asset in many countries when there was a market upheaval. Li and Lucey confirm that precious metals such as gold are assets that do not correlate with other financial assets in general.

When two assets have a positive correlation (close to the value of one / 1), the price of this asset will move in the same direction. Conversely, if the asset has a negative correlation (close to the negative one / -1), this asset tends to have the opposite direction of price movement. Meanwhile, the correlation value that is close to zero indicates two assets that are not interconnected and move independently.

As can be seen in the table below, the correlation of gold with various global stock indices is very low. This answers the question of why gold precious metals can perform very well at a time when financial markets are weakening

The results of research by Sile Li and Brian Lucey confirmed some previous scientific research results that gold precious metal assets are not correlated with other assets in both normal situations and during market pressure, as gold prices do not follow other assets over a normal period of time. In addition, gold is able to be a Safe Haven asset in the midst of abnormal market conditions. At such times, other asset price movements will usually fall sharply, while prices of precious metals including gold tend to increase.

When Gold Becomes Safe Haven Asset?

Researchers Sile Li and Brian Lucey investigated the various economic events and financial markets that make gold a Safe Haven asset. The researchers identified indicators of unstable market conditions:

  • pressure in financial markets,
  • political uncertainty, and
  • consumer sentiment.

The researchers found that the political risks and risks to a policy are strong determinants in many countries when precious metal gold becomes Safe Haven, assuming it will be safer compared to higher risk assets such as stocks and bonds. In other words, gold precious metals tend to increase and offer strong protection as long as the financial markets are under pressure caused by the uncertainty of government policy.