Is Gold a Safe Haven Asset?
Gold is often called a safe haven asset. What does it mean for something to be a safe haven asset? Some investors mistakenly believe that gold is an investment without risks. Like any other investment, buying gold comes with a number of inherent risks.
In addition to the ever-present possibility that gold may lose value, stackers also open themselves up to the risks associated with carrying a physical commodity. When you keep your gold in a home safe, you always run the risk of it being stolen or damaged by thieves or natural disaster, such as a fire.
Despite its risks, gold has been a preferred investment choice for generations. Part of the reason for this is its status as a ‘safe haven asset.’ Is gold a safe haven asset? And what does it mean to be a safe haven asset, anyway?
For today’s Bullion Academy guide, we’ve prepared a full guide to gold’s function as a safe haven investment to help you stay ahead of the curve.
What is a Safe Haven Asset?
Before we can answer the question, “is gold a safe haven asset,” we need to figure out what a safe haven asset is in the first place.
When investment experts call something a safe haven asset, they usually mean that it’s likely to maintain or gain value – even while traditional economic indicators turn sour. For gold, this is pretty easy to explain. If you track gold prices, the charts look quite a bit different than the normal stocks and bonds that most investors trade.
When you think about it, the concept of a safe haven asset is actually pretty simple. When investors are scared that global economic conditions may tank the value of their assets, they turn to something that appears to be safer. That’s where safe haven assets like precious metals come into play.
Is Gold Non-Correlated?
Safe haven assets tend to overlap with another investment class: non-correlated assets. Non-correlated assets are exactly what they sound like. A non-correlated asset’s value isn’t directly influenced by the normal factors that cause shifts in traditional investment prices.
Regular assets like stocks and bonds are closely influenced by traditional economic indicators. When inflation is high, bonds lose value. And when interest rates rise, the value of most stocks will decrease. These assets are correlated.
Gold is a different story. Gold’s price doesn’t necessarily decrease when times get bad. In fact, some evidence suggests that gold performs its best while the rest of the economy struggles. Is gold a safe haven asset because it’s non-correlated? This is one of several reasons why investors tend to consider gold a safe haven asset.
Namely, gold’s prices tend to climb when the economic or political scene gets scary. This is especially true during times of conflict. During the outbreak of the Russia-Ukraine conflict, for example, gold prices skyrocketed. Other global events marked by uncertainty, including the financial crisis of 2008 and the COVID-19 pandemic, had a similar effect on the value of gold.
Is gold a safe haven asset because of these trends? Most financial experts seem to think so, and we’ll take a look at leading economist opinions later in this article. For now, readers should know that gold is both a safe haven asset and a non-correlated investment class.
Gold as an Investment
Stackers buy gold coins and bars for different reasons. Some collectors believe that gold coins and rounds are just interesting, and they don’t tend to worry too much about getting their gold coins for cheap. But there’s another class of gold collectors known as gold investors.
For the gold investor, gold plays an important role in their investment portfolio. For decades, leading experts have urged investors to diversify their portfolio using gold bullion. Why is gold a safe haven asset? Because gold is non-correlated, gold investments tend to help your portfolio’s overall value to stay in the green – even if the rest of the economy is in the red.
Gold Price Trends – What Determines the Value of Gold?
Like we mentioned above, gold’s price is determined a bit differently than most other assets found in traditional investment portfolios. We don’t want to oversimplify – determining the value of an investment is complicated, and there’s no one cause for why some stocks fall in price and others skyrocket.
Still, it’s worth stating the obvious. A declining economy characterized by inflation and rising interest rates is bad for stock market investors. Stock prices plummet when the average person doesn’t have enough money to invest, because this decreases demand for each individual stock.
The opposite is often true for gold. Some investors look toward gold when their traditional stocks are floundering, because gold bullion has traditionally held intrinsic value. Intrinsic value means that a product is valuable because of its scarcity, rarity, or usefulness. This helps us establish a baseline for how far an asset can potentially fall in value.
When is gold a safe haven asset? Right now, historical trends tell us that gold is indeed a safe haven asset, at least when traditional economic indicators make stocks and other classic investments seem risky.
Expert Opinions – Is Gold a Safe Haven Asset Still?
Historically, experts have supported investing in gold as a way to safeguard your portfolio against the turmoil of an uncertain economy. This advice has been floating around for over a century. Even in the early 1900s, investing in gold bars was considered a fantastic method of diversifying – which is one of the cardinal rules of investing smartly.
But what do modern investors think? Is gold a safe haven asset, even in 2023? After all, the global financial marketplace has shifted considerably compared to even just ten years ago. Let’s take a look at the views of a few influential financial experts on one core question: is gold a safe haven asset for the modern investor?
According to investment group Shroder’s metals fund manager James Luke, gold is still a good choice for investors who want to keep their funds safe from outside influences like global conflict, trade wars, and unchecked inflation.
Famous investor Warren Buffet offered a similar sentiment, although he was less bullish on gold’s ability to hold actual value outside of economically challenging times. Buffet explained that gold tends to “go long on fear,” and that its periods of explosive growth almost exclusively happen when people grow concerned about the outlook for traditional investment options. Is gold a safe haven asset? Warren Buffet says yes, but not always.
Gold Vs. Traditional Investments
Like Warren Buffet, we’re concerned about how gold stacks up to traditional investments. For the sake of clarity, we’re mostly going to be talking about stocks and bonds. For most investors, these are the cornerstone of a traditional portfolio. Is gold a safe haven asset, and what makes gold a better investment than stocks, bonds, and real estate? Let’s take a look.
Comparing Gold to Stocks and Bonds
We won’t bore you too much with rehashing content here. The fact is that gold is an entirely different type of investment than stocks and bonds. Stocks and bonds do well when the overall economy performs favorably. Think high employment rates, low inflation, and falling interest rates.
When everything in the global economy is functioning the right way, companies are able to improve performance, and investors are happy to put their money on traditional stocks. The same is generally true for bonds. Faith in the U.S. government is part of what makes bonds a safe investment. But while bonds might be pretty consistent, they’re not quite the safe haven investment that gold is.
Why is gold a safe haven asset, unlike stocks and bonds? While stocks and bonds require the overall economy to improve before they increase in price, gold investors are betting on the opposite. When unemployment grows, interest rates hike, and consumer faith dwindles, gold presents itself as a very persuasive option. That’s what makes it a “safe haven.”
Balancing Safe Haven and Traditional Investments
Learning to balance your diversified portfolio is an important part of investing smartly. Warren Buffet himself has been clear about his skepticism concerning gold – and he’s not alone. When your entire investment portfolio is based on safe haven investments like gold, you leave yourself susceptible to loss.
We’ll put it this way. If gold performs well during times of economic uncertainty, what happens to a portfolio filled with gold when the economy rebounds and grows following a disaster or conflict? In recent years, gold’s price performance has been favorable – even after major conflicts or catastrophes like COVID-19 ended. It’s impossible to predict if this trend will continue, though.
Most experts agree that the best portfolios balance safe haven investments with more traditional asset classes. Is gold a safe haven asset? Yes, but this doesn’t mean it’s entirely safe. Gold prices can be volatile, and smart investors balance the volatility of gold with more stable investment classes in the traditional sector.
When is the Right Time to Invest in Gold?
Is gold a safe haven asset right now? The evidence we’ve seen suggests that gold’s price will continue to climb during economic or political crises. In the wake of the Israeli-Palestinian conflict, Russian aggression in Ukraine, and the looming threat of trade wars with China, leading analysts predict that gold might continue to be a viable alternative to traditional, highly correlated stocks.
Of course, no investment advice is foolproof. Investing in gold has inherent risks, even if it is a safe haven asset. If we’re asked, “is gold a safe haven asset,” the popular consensus is that yes – it is. But does this mean gold will never fail your portfolio? Most certainly not.
Gold Prices During Inflationary Periods
The right time to invest in gold may be during periods of intense, unchecked inflation. Experts don’t entirely agree on this point. Forbes writes that while many investors view gold as the “ultimate safe-haven edge against inflation,” gold’s record as an inflation hedge is “mixed.”
Is gold a safe haven asset against inflation? Yes and no. During periods of inflation, governments tend to raise interest rates. Like we explained earlier, this is bad news for traditional stocks, because it means that people have less money to pour into the economy and drive demand for their favorite stocks.
When this happens, the reaction of investors is typically to target safe haven investments like gold, silver, and other precious metals. This drives up demand and, yes, prices. So is gold a safe haven asset during times of inflation? As long as inflation is paired with hiking interest rates, the answer seems to be yes.
It’s not a sure thing. Sometimes, governments are too slow raising interest rates, and inflation continues unchecked for quite some time. Other outside factors can also limit gold’s ability to check against inflation, including supply and demand dynamics.
Best Gold Coins to Buy for Investing
Is gold a safe haven asset, and what gold coins are best for investors?
If your goal is to invest directly in the value of gold bullion, you’ll want to find gold coins with little numismatic value. These coins will be the closest you can get to buying gold at spot price, which is the goal of many investors. Try looking for cull coins, unpopular coins, and AMAC (Any Mint, Any Condition) gold coins if you’re looking for the best safe haven gold investment.
Gold Coins Versus Bars: Which is Better for Investing?
Is gold a safe haven asset if you invest in gold bars or coins? Gold bars are usually the best choice for investors. While gold coins serve their own purpose and might offer numismatic appreciation for collectors, bars are sold with a much smaller premium. Think of it like this: when you pay a premium, you’re not actually buying any extra gold. That money is just the cost of investing in this particular commodity.
Is gold a safe haven asset if you only buy gold bars? While we can’t say that gold bars will always increase in value, their lower premiums make them a better choice than gold coins for people who are investing to check against uncertain economic conditions.
Final Thoughts: Is Gold a Safe Haven Asset?
So is gold a safe haven asset? This advice has been floating around for generations. According to most financial experts, gold is still a solid safe haven asset. But that doesn’t mean gold is the perfect investment. The volatile gold market can turn sour at any moment, so investors need to be careful before pouring their money into gold coins and bars.
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About The Author
Michael Roets
Michael Roets is a writer and journalist for Hero Bullion. His work explores precious metals news, guides, and commentary.