In the past half-decade, much has been written about the bull market, corrections and general volatility in the precious metals markets. A number of studies have been done on the role of gold as a hedge for portfolio diversification. (1990). The study of other precious metals’ hedging abilities as a safe haven has also been done. This is due to their low correlations with equity indexes and their role in natural inflation hedges. Hillier et al. (2006) concluded that the three have low correlations to stock index returns, especially during periods of high stock volatility. Portfolios that include precious metals perform better than standard equity portfolios. Conover et al. Conover et al. (2009) conclude that portfolio performance is significantly improved by a 25% allocation of precious metals firm equities.
What is meant by “safe haven”?
Small investors often use the term “haven asset”, which is a type of investment that retains its value over time. This protects against inflation, financial and political crises. The investor can be protected in the event that there is instability.
The term safe haven is used in trade and academic literature to describe assets that investors use to protect capital during times of uncertainty. At different times, a large number of assets were suggested as safe havens.
The United States assets and U.S. dollars were the most frequently referred to as safe havens in the 1980s and 1990s. As “safe haven assets”, gold, German government bonds and the Deutsche Mark as well as other treasury securities such the Swiss francs, the Yens, Euros, New Taiwan dollars, Singapore dollars, money market funds, Russian assets, and the commercial market have all been referred. In the financial media, safe haven assets can be considered for a wider range of assets such as the equities in the tobacco sector or particular urban property markets. The implicit or explicit assumption is that assets, currencies and countries are associated with lower risk during financial and economic turmoil.
Why is it named this and what are the most common safe haven assets?
You need to understand that investing your savings in financial products can produce good results in terms if gains. However, it is important to consider the potential risks and disadvantages. In fact, money and securities are forms of intangible wealth and can be subject to common risks such as inflation, risk of default by the state, bank and business failures, and so on. You should however consider a haven asset if you are looking to diversify your investments and to protect your capital.
What exactly is haven assets? What are the differences?
Let’s look at the characteristics and types of each asset.
- The top ranking of haven assets par excellence places gold, silver, and platinum undoubtedly. Because they are small and portable, they are the universal official reference value in all countries, regardless of their currency or local politics. These metals are also indestructible and so they retain their value.
- Secondly we find real estate investment (property and land) is a top-ranked haven asset. However, this requires significant disposable income due to the high prices for land and homes in Italy.
- We find third place diamonds and precious stones. These are obviously valid alternatives to the ones listed above. But, aside from the ethical aspect (diamond mining is a lucrative business that exploits the poorest people), technical skills are also required.
- Paintings and works of art, as well as collector’s items, are viable alternatives for safe investments. They tend to appreciate in value over time. Technical expertise is required again to correctly identify and evaluate these objects, as there are many risks involved in this market.
Because of its stability over time and its universally acknowledged and shared value, gold is the only true haven asset. It’s no accident that gold has been a long-standing official reference for national currencies.
There is more to it, as normal coins can be issued at higher quantities (they could theoretically be issued in infinite numbers), but gold will continue to rise in value relative to currency.
Investing in gold is a good investment because it is safe and secure. It can withstand periods of fluctuation, crisis and inflation and is therefore considered to be a real physical insurance against devaluation or default.