Historically, perceived ‘safe-haven’ assets such as the US Dollar and gold have experienced surges in demand during times of economic turbulence, with the price of the latter rising exponentially in the depths of the great recession.
While this trend has hardly showed signs of abating as the coronavirus has wrought havoc on the global economy, investors are increasingly inclined to seek out alternative safe-haven assets in a diverse and fast-evolving marketplace.
In fact, asset-backed cryptocurrencies (or stablecoins) have shown immense potential as safe-haven instruments, with Tether leading this progressive trend. But how does this compare to gold and (to a lesser extent) silver from an investment perspective?
Gold and Silver During the Pandemic
Back in June, the price of gold reached renewed heights as coronavirus fears peaked across the globe, although it’s fair to say that the precious metal has seen demand slump at the beginning of Q3.
This has followed improved economic sentiment as the worst of the pandemic appears to have passed, in addition to a particularly heavy sell-off amidst a marked pick-up in US treasury yields.
In the wake of this selling pressure, gold has slipped back below its record price of 1979.25, with this trend remaining prevalent even as concerns about second Covid-19 spikes and the potential US stimulus package continue to weigh heavily on the economy.
Of course, this doesn’t mean that gold has lost its status as a viable safe-haven investment, as demand is sure to increase once again if the winter brings renewed outbreaks of the virus across the globe. According to the research team at Tickmill, the ongoing risk of national lockdowns could also trigger a spike in the demand for gold, potentially before the end of the summer.
Silver has also seen relative fluctuation of late, after achieving a break-out high price of 29.8611 last week.
This won’t come as a surprise to many, of course, as while silver boasts value as a safe-haven asset, it’s also a functional material that grows in value as economic productivity increases. However, investors will be watching the price of silver closely in the coming weeks, especially as the greenback comes under increased uncertainty in the current market.
The Rise of Crypto Tokens as Safe-haven Assets
It has long been argued that Bitcoin has joined the ranks of safe-haven assets in recent years, but this claim is undermined by the volatility of the token and its relative unpredictability.
However, it cannot be denied that asset-backed tokens or stablecoins (which are typically tied to a fiat currency such as the dollar or a similarly secure asset) offer potential value as safe-haven instruments, with Tether offering a relevant case in point.
Tether, which is tied to the USD and the largest asset-backed token in the market, has seen its value grow markedly since the beginning of the pandemic, while Bitcoin has periodically shelved value and triggered a considerable sell-off.
As a result of this, Tether’s total market cap topped $5 billion at the end of Q1 this year, rising from just $2 billion in February 2019. Make no mistake; this trusted asset class has seen a huge spike in demand in 2020, backed by the robust performance of the USD and better-than-expected job creation data in Q2.
Ultimately, both gold and Tether have emerged as reliable safe-haven assets in recent times, with the latter also joining the ranks of the USD and the Japanese Yen as secure stores of wealth during austere economic times.
However, there’s growing evidence that investors may be increasingly inclined to favour established stablecoins such as Tether in the near-term, particularly as this asset offers increased protection for investors in the event of a total market crash.