What makes safe-haven assets special?
Safe-haven assets are investments that don’t get shaken up by economic downturns in the same way risk-on assets — such as cryptocurrencies and growth stocks — do. Rather, these types of assets retain their value because they have been essential resources for many years, and it’s almost impossible for societies to operate without them.
Gold is one of those assets. It has served as a store of value for thousands of years and is a useful inflation hedge. Investors and central banks load up on gold to reduce the impact of economic and geopolitical uncertainties. However, gold also has many uses in industries and products like jewelry, automobiles, satellites, and semiconductors.
Gold isn’t the only thing that will continue to retain value. Commodities like oil, crops and livestock also tend to retain their value during any economic cycle. No matter how bad the economy gets, people will always need food and gasoline.
Consumers are willing to pay higher prices for these essential products if inflation brings them up to new highs. As an example, the recent outbreak of avian bird flu has caused egg prices to more than double in one year. Prices increased because the bird flu reduced the supply of chickens, which in turn reduced the number of available eggs.
How to invest in safe-haven assets
The easiest way to invest in safe-haven assets is with mutual funds and ETFs. These funds offer diversified exposure to a basket of safe-haven assets. Investors can also buy shares in publicly traded corporations that profit from safe-haven assets.
For instance, Newmont Corporation is a gold miner that benefits when the price of gold goes up. Vital Farms is a publicly traded company with a business model that revolves around eggs. Investors can also buy the safe-haven asset outright or trade futures contracts.
While it’s more practical for some safe-haven assets than others, you also have the option to buy the physical versions. Many investors buy physical gold and silver that they can store in their homes, safe deposit boxes at banks or in reputable precious metal depositories. However, it’s much more difficult to use this strategy with eggs since they are perishable. Futures contracts, mutual funds and ETFs are more suitable for soft commodities that perish, such as agricultural products and livestock.
Is gold the best safe-haven asset?
The “best” investment is in the eye of the beholder, but there are a few key distinctions that set gold apart from other safe-haven assets. The first advantage is how easy it is to store gold. You don’t have to worry about storing a live asset like crops or livestock.
The ease of storage also results in lower storage costs for gold compared to other assets. Farmers need a lot of land for chickens, pigs, cattle and crops. Investors don’t require large amounts of land to safely store $1 million worth of gold, which weighs a little less than 400 troy ounces. Some gold bars weigh 100 troy ounces, making it efficient to store a lot of value.
Gold is also less volatile than most of the other safe-haven assets. Soft commodities like crops and livestock have more factors that can influence their prices. Weather conditions, diseases and varying crop yields are some of the factors that influence soft commodities. None of those variables affect gold.
Finally, the precious metal has been used as a medium of exchange for thousands of years. Gold has retained intrinsic value during various economic cycles, and it is also vital for many industries. The continued stockpiling of gold as an investment, plus its real-world uses, has helped it generate respectable long-term gains.
