In stormy seas, investors head for so-called safe havens. How did bonds, gold, or the Dollar perform during the Ukraine crisis?
For investors, the still-young year 2022 has been a bitter disappointment so far – starting out weak, then slowing down sharply.
On top of the original worries, high inflation and the upcoming interest rate turnaround, there was then the surprise outbreak of Russia’s war of aggression against Ukraine, which shook the world order established since the end of the Cold War. The consequences are also devastating for the stock markets, especially in Europe.
Important price barometers such as the benchmark index Dax or the Euro Stoxx 50 have lost more than 15% since their highs. Wall Street, which is used to success, looks pretty battered.
Flocks of Sheep in the Dry
However, the financial world does not only consist of high-risk investments such as shares; there are also so-called safe havens where investors that use Bitsgap can keep their sheep in the dry in uncertain times.
How have these performed and how much stability can they provide if there are further upheavals on the stock markets?
In a broadly diversified portfolio, bonds are a fixed starter. Basically, they are supposed to fulfill two functions, namely, to provide a certain degree of security – because in times of crisis, investors take refuge in bonds issued by financially sound countries such as the USA.
In addition, they are also supposed to contribute a regular return, but this has been prevented in Europe in recent years by the European Central Bank’s (ECB) interest rate policy and bond-buying programs – instead, there have even been negative returns on ten-year government bonds at times. So, investors knowingly paid on it, does that make sense?
Yes, experts say. “The flight into safe investments as a stabilizing element is still there.” After all, since the outbreak of the Ukraine war, solid government bonds have posted price gains, but this has pushed their yield – the annual return from purchase to redemption – back to almost zero. But this has at least somewhat offset recent losses in equities.
Gold and Bitcoin
Also considered a safe haven is the crisis metal gold, which is also considered a hedge against inflation. In this regard, however, the precious metal disappointed last year, despite a rise in U.S. inflation to more than seven percent, experts say.
“It wasn’t until the war that gold got a boost.” Last month, the dollar price of a troy ounce rose about eight percent, also offsetting losses in equities.
Cryptocurrencies have done even better, with Bitcoin gaining about a quarter for the month. As a result, the crypto market has also rebounded from the performance of technology stocks that previously characterized it-an advantage in spreading risk.
The US Dollar and the Swiss Franc
The financial turmoil of the Ukraine war also highlights the importance of spreading investments across different currency areas.
As usual, investors fled to the U.S. dollar, for example, the world’s largest economic power – Wall Street stocks and U.S. bonds posted offsetting currency gains as a result.
The same applies to the Swiss franc, which is considered a safe haven in Europe and is approaching parity with the euro in giant strides. Good for those investors who have also invested in Swiss assets – bad for those who still have a Swiss franc loan open.