What are safe havens?
- by Anna K.
Today the greenback has plunged down. And in time when a major currency loses its points and its value the time for safe havens to shine comes along. And we talk about safe havens a lot. But we never explain what are these safe havens and why are they so popular in tough times?
Well, safe havens are the trading assets which are getting all the popularity and attention during hard times. These are currencies, commodities and bonds. And in order to know what assets to turn to when the situation turns bad we need to know for sure – what are these safe havens in the first place?
2. Government bonds.
Gold is one of the most famous and obvious safe havens in the market. Reasoning behind this is also quite obvious – it is the commodity that gains all of its power when USD loses all of its power. That makes for perfect opportunity to BUY gold when the greenback is down. Its price is not influenced by any of the central banks and any of the regulating policies. Its supply cannot be manipulated in any way.
In any financial crisis and during tough time people and traders especially turn to gold. It just seems safer than any other asset. And in a way those who think so are totally correct.
2. Government bonds.
If you want to feel like a bank you are to own governmental bonds. What are they? Well, essentially they are the big ‘WE OWE YOU MONEY’ from the country. And upon this debt the percentage is paid off regularly. Isn’t that nice?
Investors prefer to see the bonds as safe havens due to the fact that all of the investment is for sure going to be repaid with percentage. Guarantee of returns – that is what makes government bonds so popular.
Well of course the USD is going to be on the list, the most popular international currency in existence. Why is it so popular even when financial troubles are coming out of the USA? Well, due to the highest liquidity of USD in the market. And as we can see no amount of controversy can shake the status of safe haven from USD.
It was speculated that the status was going to be lost for the time that Donald Trump is in office, but evidently all of the instability caused by his statements is not nearly enough to strip it away from the most popular/liquid currency there is.
JPY has been considered a safe haven ever since WWII ended. It was then that the currency went global and we started seeing it as a real investment opportunity. The status of safe haven was given to it due to the fact that it surges against the greenback when USD is feeling weak. It is interesting that this movement is very often self-Imposed. Traders decided that it is going to be this way and it is.
Japanese trade surplus versus the debt of the country is another reason for the status. Plus, EUR/JPY trading chart can always help us tell what the situation looks like in terms of finance – if it is going up, the risks are low and investors prefer to put their money into a volatile euro. If it is going down, traders and investors are seeking safe havens due to high risks in the markets.
Independence from EU, neutral position of the government, strong economy and so on – these are the main reasons for growing popularity of CHF. It was discovered that as soon as the world stock market goes down, Swiss franc is going up. That is the straight confirmation that CHF is now a safe haven for international traders.
BUT! However safe the asset may be, it is better to use trading signals when trading it!