Safe-Haven Assets: Coronavirus Market Crash Make Investors

Safe-Haven Assets: Coronavirus Market Crash Make Investors Turn to Gold and Bitcoin

What started as a health crisis, the coronavirus pandemic has caused global economic and fi nancial turmoil rather quickly, on a scale that’s not been seen during any previous infecঞ ous disease outbreak, including the Spanish Flu back in 1918. Closed economies, prolonged lockdowns, mass unemployment, disrupted international trade — it’s no wonder that stock markets crashed, leaving everyone guessing and worrying what’s next for the global economy. Seeking for some certainty, since mid-March, when the fi rst wave of lockdowns began, people have been turning to the so-called “safe-haven assets“. To be more specifi c, during ঞ mes of global economic crisis, investors tradiঞ onally look to secure their holdings in precious metals (gold and silver), currencies (US dollar and Swiss franc), and non-volaঞ le assets. Today, one more safe-haven asset has joined the list: the bitcoin. Both bitcoin and gold have risen sharply throughout 2020, mostly

driven by relentless fi at money printing by governments and central banks, keen to keep their economies afl oat in the wake of the coronavirus pandemic. August 2020 started interesঞ ngly, as on the very last day of July bitcoin rallied to its 2020 high of $11,392. And that is not all: as the bitcoin rallied up, its correlaঞ on with gold also increased, as gold broke through $1,900, recording a new high. According to data from Kraken, a US-based cryptocurrency exchange, the increase in correlaঞ on represents a trend shi[ as the relaঞ onship between the two had previously been falling. Explaining the current trend shift, MagnifyMoney, a leading consumer-facing media property that helps consumers understand personal finance with comparisons and perspecঞ ve on money news, published a report, which revealed that millennials are leading the rush to buy gold and cryptocurrency stocks as the virus spreads. To be even more specifi c, 1 in 6 consumers have been invesঞ ng in gold or other precious metals over the last 3 months. Gold has a storied reputaঞ on for being very stable and resilient, regardless of how the stock market turns, and that’s why many people, hoping to keep their money safe, invest in gold rather than stocks. What is more, millennials also hope to make money during the stock market’s rollercoaster ride, so they’ve been going digital and invesঞ ng in bitcoin as well. Commenঞ ng on the bitcoin and gold correlaঞ on, James Li, a research analyst at CryptoCompare, the independent global cryptocurrency market data provider, says that while previous correlaঞ ons between gold and bitcoin led to surges in the bitcoin price, the context is diff erent this ঞ me. He noted that “Last ࢼ me bitcoin had a moderate correlaࢼ on with gold — around 0,5 — was towards the end of 2018. That was when a month earlier in November 2018 bitcoin suff ered a 50 percent drop at the height of the bitcoin cash war and made some subsequent rebounds. Gold was recovering from a somewhat cyclical drop a couple of months earlier. The moderate correlaࢼ on back then was perhaps a bit of a coincidence.” To be more specifi c, data analyঞ cs fi rm Skew noted that this August, prices of bitcoin and gold have reached a monthly average correlaঞ on of 70 percent — an all-ঞ me high. What is more, according to a research paper from Bloomberg, called “June 2020 Ediࢼ on: Bloomberg Crypto Outlook“, the same forces supporting gold could posiঞ vely aff ect bitcoin, resulঞ ng in bitcoin’s upsurge. Bloomberg researchers noted that “Increasing companionship with gold is a bitcoin-price tailwind, in our view. At the highest-for-longest 52-week correlaࢼ on and beta ever versus the metal, the fi rst-born crypto should conࢼ nue to advance for reasons similar to gold, fueled by unprecedented global central-bank easing.” Interesঞ ngly, since March, bitcoin’s gains have outstripped any other major asset and risen 4 ঞ mes faster than the Dow Jones Industrial Average. Therefore, Wall Street veterans and experts have their own opinions on this one.

Michael Novogratz, billionaire, founder, CEO, and chairman of a crypto merchant bank Galaxy Digital, says that, in his opinion, bitcoin will conঞ nue to outperform gold in the upcoming months. He noted that “Gold has been around for 3,000 years. It’s pre‚ y easy to buy. Bitcoin is a better long-term bet than gold,“ highlighting that bitcoin is more worth as an investment because it is more diffi cult to purchase than gold. Other Wall Street veteran and CEO of a fi nancial media company Real Vision, Raoul Pal, believes that bitcoin will be the best performing asset in the next 2 years. Although bitcoin’s price has struggled to stay above $12,000 twice this month, he thinks that the world’s first cryptocurrency could rally to $100,000 soon, even menঞ oning the $1 million thresholds. “Bitcoin is currently realizing its reputaࢼ on as a form of digital gold,“ noted Nigel Green, CEO of deVere Group, one of the world’s leading independent fi nancial advisory organizaঞ ons. “Up to now, gold has been known as the ulࢼ mate safe-haven asset, but bitcoin — which shares its key characterisࢼ cs of being a store of value and scarcity — could potenࢼ ally knock gold from its long-held posiࢼ on in the future as the world becomes ever-more tech-driven.“ On the other hand, Peter Schiff, a notable economic forecaster, and investment adviser says that gold’s price will conঞ nue increasing in the next 12 months as well. What is more, Morgan Stanley, JPMorgan, and Goldman Sachs all foresee the gold price rallying by 2021, potenঞ ally rising to as high as $2,000 per ounce. The industry group World Gold Council noted that the leading reason for the likely desire to buy gold is fear of another fi nancial crisis. With the coronavirus pandemic disrupting supply chains, forcing large-scale corporaঞ ons across all major sectors to struggle to sustain their operaঞ ons, investors tend to consider gold as a hedge against the economic uncertainty, making it the preferable opঞ on from other tradiঞ onal assets like cash and bonds. Goldman Sachs analysts said historically, the demand for gold rose amid a

lack of clarity around the early phase of an economic recovery. Interestingly, during a period of expansion, gold prices remain steady or lower. On the other hand, during recessions, the price of gold rises. For example, in mid-September 2008, at the height of the fi nancial market crash, the price of gold dipped below $740 per ounce. But in August 2011, gold rose to over $1,900 per ounce. But Peter Mallouk, president and chief investment officer of wealth management firm Creative Planning, says that the current tendency is not exactly the right one, noঞ ng that investors turning to speculaঞ ve assets like bitcoin or gold and silver are beম ng on the wrong investments. “You have incredible companies that we know are not going anywhere, selling for half off . There is no need to go over into the speculaࢼ ve world,” Mallouk noted. According to him, investors should instead focus on buying the stocks of tradiঞ onally stable companies that are trading low because of the coronavirus shutdown.