Each year brings new challenges for financial markets and 2020 has probably been the most difficult one in recent memory. Without a vaccine, there is no telling when the world will finally be able to overcome COVID-19. When financial markets are in crisis, like they are right now, investors have a tendency to flock to assets that they believe are safe and high quality. Called safe-haven assets, these are assets that have shown an ability to do well even in volatile market situations. While most investments are sinking, these assets tend to retain their value or even appreciate during crises. However, what might have been safe havens in a specific market crisis might not perform just as well at the next turn, and it’s hard to discern which assets will function as safe havens in future market crises.
That being said, here are the top safe-haven assets of 2020:
Gold is on the comeback trail for a number of reasons. Gold bugs who were disappointed by the downturn of prices in the middle of the decade are starting to have faith in the old precious metal once again. Gold has taken advantage of the Federal Reserve’s interest rate cuts last year and gives sufficient liquidity to the repo market.
And while some central banks are busy printing money, there are others like Russia and China that have been expanding their portfolios into gold. Another factor helping the yellow metal comes from the high demand for other rare materials like those of palladium and rhodium, which are used in modern automobiles.
2) Japanese yen
The Japanese currency is at the top of the list of safe-haven currencies but the yen trade is already crowded, leaving the crown to gold. Nevertheless, USD/JPY and other yen crosses had taken a deep dive when depressing news broke out even if it related to Japan. The tragic earthquake, tsunami, and nuclear disaster in Fukushima in 2011 led to frantic a rush to the yen despite the catastrophe for the island nation. While its status has worn out since then, the currency benefited from tensions around North Korea and, more recently, Iran. It remains in demand also with the coronavirus.
3) US bonds
The US dollar is considered to be the world’s reserve currency, and Treasury bonds still give a high yield compared to other developed countries. Additionally, America’s debt market is deep and liquid, letting investors flock into bills, notes, and bonds at almost any time. While President Donald Trump’s tax cuts have ballooned the deficit and US debt, sufficient liquidity provided by the Fed and avid demand for bonds makes it the go-to asset in debt markets.
4) Swiss franc
The small nation in the Alps is famous for secretive banks, safety, and solidity. However, the Swiss National Bank’s ruling to peg the value of the franc to the euro in 2011 and its confusing abandoning of this floor in 2015, have pushed it lower in the ranks. Nevertheless, 2020 has been a plus for CHF. While it is not the initial choice when disaster strikes, it is neither sold off that fleetingly. Overall, it functions as an enticing options to the beaten yen trade for those who want to stay away from gold.