• Monday, April 15, 2024
businessday logo


Gold, Cryptos show why havens might be good bet amid global uncertainties

Recent events in the New Year, only a month old, have put the world on the edge showing just why investors should consider diversifying into havens and alternatives in an uncertain world.

From Trump’s World War III scare, the Australian forest fire, locust outbreak in Africa to a virus epidemic now declared by WHO as a global health emergency, 2020 feels like it would be a long year.

A face-off between US and Iran threatened middle-east politics and pushed crude oil price up in early wins after Iraq and Iran talked tough. Precious metals, fresh off a great 2019 on the back of global uncertainties also surged in early January.

The recent outbreak of Coronavirus in Wuhan, China has now spread to almost 20 countries, infecting 9,000 and killing more than a hundred. The incident is weighing on stock markets in the US and some other countries but havens have seen noted impressive gains.

Gold, currently above a 7-year high, climbed marginally on the spot market on Friday to extend gains in the year to 4.1 percent.

The bullion hit $1,581.34 an ounce partly helped by the global health crisis.

Gold had surged to $1,588.13 per ounce, the highest level since April 2013, when Trump threatened immediate and “disproportionate” strike should Iran retaliated US’s killing of General Qassem Soleimani.

The increase in bullion price is because the metal is usually perceived as a safe store of value during periods of uncertainty. For instance, the precious metal gained 18.9 percent in 2019, characterized by geopolitical uncertainties, to record its performance in nine years.

Following suit, bellwether cryptocurrency Bitcoin has jumped by around 14 percent since Wuhan, at the epicentre of the virus outbreak, was put on a lock-down.

While there’s a debate whether cryptos are havens, Bitcoin touched $9,545 last week for the first time since November last year. The crypto has gained around 34 percent in January alone.

Given that over 60 percent of the global Bitcoin mining takes place in China and a sizeable portion of global trade takes place in the country, it should makes sense that a major health crisis would support cryptocurrency price.

More so, as concerns that a slowdown in the Chinese economy and spill-over to other economies hurt stock markets, investors in developed economies are expected to look for safety in havens and alternative assets.

However, some crypto analysts say the surge in Bitcoin might not be related to the virus outbreak.

The sceptics explain movement in Cryptocurrencies as being tied to shifting stance on regulation and activities of big crypto-investors (whales) in the market.

In October last year, Chinese president Xi Jinping emphasized that importance of the integrated application of blockchain technology to new technological innovation and industrial transformation in China.

While in a related event, China Merchant Bank, a Chinese bank that conducts businesses domestically and internationally, announced an investment in BitPie, said to be the Bitcoin wallet with the longest history and most users in China.

The events have been interpreted, alongside the passage of the cryptographic law by the Chinese government, to grant legitimacy to Bitcoin even though the official acknowledgement was for Blockchain technology.

While the crypto-world is still trying to understand the reason for the price surge so far, events both in 2019 and the past few weeks suggest that during uncertainties Cryptocurrencies along with other havens have seen impressive gains.

Nobody hopes for bad news, but 2020 has so far shown that there is no predicting which way the pendulum will swing. Nonetheless, investors can consider diversifying their investment so their portfolio remains strong whichever way the tides turn.