Gold and the U.S. Dollar: Rise of the Safe Havens
World markets, of late, have been subjected to much movement and turbulence amid mounting tensions between Ukraine and Russia. The geopolitical conflict in Eastern Europe has caused global stocks and key currencies to slide during recent times even as oil prices reached multi-year highs.
In the midst of such turmoil, safe-haven assets like gold and the U.S. dollar are attracting a multitude of investors away from risk assets.
Gold as a safe haven asset
Typically, a safe haven asset can be described as any asset or investment that is expected to persist and grow even at the time of market turbulence. Not only do they offer a reliable buffer during times of market volatility, they also help investors diversify their investment portfolio.
Gold is one such safe haven asset which has served as a store of value since time immemorial. Since it is neither printable like money nor is it impacted by market shifts, gold is a safe place to invest your money in, especially during unfavorable periods in the markets.
Amid mounting tensions between Ukraine and Russia, gold has experienced an upsurge having surpassed the $2,000-mark for the first time in 18 months recently. But it has since turned volatile amid the ongoing tensions in Eastern Europe.
However, it is important to note that even during bearish seasons, gold is able to recoup its losses on account of its status as a store of value.
U.S. Dollar as a safe-haven currency
The U.S. dollar is regarded as the safest currency in the world and can be used to purchase gold and U.S. Treasury securities, which are safe haven assets themselves, thus adding to the global demand for the currency.
Importantly, the dollar also serves as a guiding force during times of geopolitical upheaval. Although it may lose its status as the world’s choice reserve currency, the dollar currently holds the position all the same. To counter soaring pandemic-induced inflation which recently hit 40-year highs in the U.S., the Federal Reserve has instituted its first interest rate increase by a quarter point for the year, after the conclusion of its two-day meeting on Wednesday.
Although the dollar has sustained minor losses in the days immediately following the Fed rate hikes, it is projected to have a bullish outlook for the year since it is a safe haven currency. The upcoming six additional interest rate hikes will further cement the significance of the dollar which is bound to turn stronger as a result.
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