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Safe-haven assets compared: gold, commodities, currencies, bonds, cryptocurrencies, and real estate

3. July, 2023

High-yield safe haven assets

Those who observe the markets have probably noticed that the value of gold has recently reached new highs and that Bitcoin (which some refer to as digital gold) has resumed its upward trend after months of decline. And this is great news for those who want to invest in real estate. In this guide, we’ll see why.

Financial repression, monetary illusion, and safe haven assets

To understand what is happening in the markets, it’s important to consider that we are currently experiencing a phase of financial repression. Despite central banks raising interest rates and, as a result, the bond market offering much higher yields than a few years ago, and some financial institutions offering interest rates (especially for locked-in sums) that have never been so high in the last decade, these rates are still lower than the inflation rate. In fact, these are investments with negative (real) rates.

There are those who fall victim to this monetary illusion—the inability to distinguish between nominal rates and real rates—and therefore believe they are earning when in reality they are losing. And there are those who protect their wealth by focusing on safe haven assets. In the current economic climate, which we will delve into later, investors are almost exclusively focused on gold. Over the past year, the yellow metal has experienced significant appreciation, rising from just over $1,620 per ounce in November 22 to over $2,048 in April 23. During the same period, with much higher volatility, Bitcoin went from $15,757 in November 22 to $30,506 in April 23.

What are safe haven assets and why are they important for investors

Safe haven assets are considered to be all physical assets (or financial products whose value is linked to physical assets, e.g., a gold ETF) that retain their value even in the event of financial crises, especially during financial storms (economic shocks, recessions, wars, etc.).

This broad definition includes:

• Precious metals such as gold, platinum, and silver

• Commodities

• Cryptocurrencies such as Bitcoin and Ethereum

• Strong currencies such as the US Dollar, Japanese Yen, Swiss Franc, and British Pound

• Debt securities issued by secure states and issuers, such as German Bunds

• Real estate

The main advantage offered by safe haven assets is the protection of capital because, as we have seen, they maintain their value in stressful conditions and tend to appreciate in such situations. It is precisely the lack of correlation, or often inverse correlation, with other assets (e.g., when stock markets crash, gold rises) that reduces the risks for those holding them in their portfolio and makes the portfolio more profitable.

Why many safe-haven assets no longer offer refuge

Regarding commodities, in the current economic climate, they no longer fulfill their function as safe-haven assets as they are retracing after their strong performance due to the post-COVID recovery and the Russian invasion of Ukraine. These two events pushed their values to unprecedented highs, which are unsustainable for the real economy.

As for currencies and bonds, the moves by central banks – which have seen a series of interest rate hikes never seen before in an attempt to tame inflation – have completely disrupted the value of these assets. Consider the dollar/euro exchange rate, which went from 0.95 in October 22 with the dollar stronger than the euro to 1.10 in April 23 with the balance of power reversed. Meanwhile, the entire bond market has been experiencing declining values and rising yields for months with each rate hike, and these increases do not seem to be ending as inflation in the USA and Europe is still far from the levels considered acceptable by the central banks themselves.

With many safe-haven assets out of play, as we saw at the beginning, investors’ attention has focused on gold and Bitcoin.

Disadvantages of Bitcoin and gold

Although they can be considered safe-haven assets in their own right, precious metals and cryptocurrencies have significant disadvantages.

Bitcoin, Ethereum, and all other cryptocurrencies exhibit unpredictability and volatility that can test even the most speculative investors and result in significant losses for those holding them (consider Bitcoin plummeting from $64,000 in November 21 to below $19,000 in June 22 and then dropping further to below $17,000 in November 22).

As for gold, the saying “A field of grain produces grain, a kilogram of gold produces nothing” still holds true. The yellow metal is, in fact, unproductive. Holding it does not generate any income, and in a situation of rising interest rates to chase even higher inflation, this can be very detrimental.

Are there “productive” and stable value safe-haven assets?

Fortunately, for investors, there is at least one class of safe-haven assets that overcomes the main limitations mentioned earlier. These are real estate assets, particularly income-generating properties, such as rented houses occupied by tenants who pay rent.

From a value perspective, these safe-haven assets follow their own dynamics, disconnected from the trends of other assets and with limited volatility, thanks to corrective measures implemented after the 2007-2008 crisis, which originated in the real estate market due to subprime mortgages.

Furthermore, apart from capital appreciation in the market, these properties also offer investors a decent profitability through rental income. Rents tend to increase over time due to inflation. Just visit the Opisas website under the “Investing in the USA” section to find houses that yield a net return of 5% to 10% per year, in addition to their appreciation over time.

Holding these assets provides investors with:

  • Capital protection
  • Limited volatility
  • Strategic diversification
  • High profitability that can outperform current and projected inflation in the coming months

Do you want to learn more about investing in these high-yield safe-haven assets?

To learn more, request the advice of an expert. Email to schedule an appointment with a consultant who can help protect your capital and, at the same time, generate a decent return on your investments.

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