The influence of the covid-19 pandemic on safe haven assets

The influence of the COVID-19 pandemic on safe haven assets

The COVID-19 pandemic has severely impacted the financial markets, which includes triggered a flight from risky assets to safe haven assets. This column compares the performance of the safe havens over the world’s ten largest economies during COVID-19 and the 2008 Global FINANCIAL MELTDOWN. The findings claim that the type of safe haven assets has changed because the 2008 crisis. Gold, the original safe haven asset, has lost its glitter. However, the Swiss franc, the united states dollar and US Treasuries retained their safe haven status, and Tether, a cryptocurrency, shows some promise.


The COVID-19 pandemic has evolved from a health crisis right into a severe overall economy as countries all over the world closed their economies and prevented the movement of, and interaction between, people as a way to slow the spread of the virus. The overall economy initially led to an enormous selloff in the financial markets as investors transferred risky assets into safe haven assets to safeguard their wealth (Bofinger et al. 2020, Wyplosz 2020). Consequently, COVID-19 has struck the stock markets more severely than any previous infectious disease outbreak, like the 1918 Spanish Flu (Baker et al. 2020).

The pace and severity of investors fleeing from risky assets to safe havens raises the question: How safe will be the safe haven assets? Traditionally, gold and silver coins (silver and gold), currencies (US dollar and Swiss franc), and US Treasuries (T-bill and T-bond) are thought to be safe havens during times of crises. Moreover, a few researchers declare that cryptocurrencies such as for example Bitcoin also have joined the rank of safe haven assets (e.g. Urquhart and Zhang 2019). However, others view cryptocurrencies as a risky asset rather than a safe haven (e.g. Cheema et al. 2020). Therefore, Baur and Hoang (2020) suggest using asset-backed cryptocurrencies, such as for example Tether, as a safe haven against Bitcoin during extreme market movements. Tether may be the first and largest asset-backed cryptocurrency (i.e. a stablecoin). Stablecoins are cryptocurrencies that are pegged to other stable assets such as for example gold and traditional currencies. Therefore, stablecoins, theoretically, would become as stable as the pegged assets.

In Cheema et al. (2020), we examine the efficacy of safe haven assets through the COVID-19 pandemic and compare their performance through the 2008 Global FINANCIAL MELTDOWN (GFC). More specifically, we ask the question: Have traditional assets which were safe havens through the GFC (e.g. Baur & McDermott 2010; Low, Yao & Faff 2016) maintained their safe haven status through the COVID-19 pandemic, since times have changed substantially (for instance, investors now likewise have the chance to use cryptocurrencies as a safe haven asset instead of traditional safe haven assets such as for example gold)?

Our analysis includes the ten largest economies – the united states, China, Japan, Germany, the united kingdom, France, India, Italy, Brazil and Canada – since investors prefer to purchase these markets. Safe haven assets should earn positive or, at worst, near zero returns during financial market turmoil if indeed they contain the qualities of a safe haven. We use descriptive statistics and regression with a GJR-GARCH correction to examine the performance of safe haven assets. Both methods yield similar results.

Our first finding is that gold has lost its glitter through the COVID-19 pandemic though it was a safe haven through the GFC. Table 1 shows gold’s poor performance. The table lists the returns of safe haven assets on the times of the ten largest losses in the S&P 500 through the COVID-19 pandemic. Clearly, gold returns generally moved in tandem with the ten extreme currency markets losses in the S&P 500 through the pandemic, with seven out from the ten negative gold returns. For example, gold lost 4.90% of its value on 12 March 2020 as the S&P500 index incurred a 10% loss. The most obvious question is what has happened to gold as a safe haven asset during COVID-19, when investors regarded gold as a safe haven through the GFC? We claim that investors may have altered their views about gold as a well balanced asset given that they were mentally scarred by gold investments between 2011 and 2015 when gold lost 45% of its value. The most common counterpart platinum, silver, hasn’t functioned as a safe haven in either crisis. Investors ought to be careful using silver as a safe haven during market turmoil.

Table 1 Extreme losses through the 2008 GFC and COVID-19 pandemic

Note: Panels A and B list the ten largest daily losses of S&P 500 returns and the respective returns of safe haven assets during COVID-19 pandemic and the 2008 GFC, respectively.

Our second finding is that the Swiss franc has served as an improved safe haven asset compared to the US dollar during COVID-19 despite the fact that these were both safe havens through the GFC. As shown in Table 1, five out of your ten US dollar returns were negative, but only two Swiss franc returns were negative through the days of the ten largest losses of the S&P500 index. However, the daily returns of both Swiss franc and US dollar varied between -1.10% and 1.58% each day through the ten extreme currency markets losses, which are small variations. Therefore, they have helped protect investors’ wealth and maintained their safe haven status during COVID-19.

Our third finding is that the united states Treasuries – T-bills and T-bonds – served as safe havens during both crises. As shown in Table 1, Treasuries recorded at least seven positive returns on the times of the ten largest losses in the S&P500. A fascinating simple truth is that Treasuries have retained their status as a safe haven during COVID-19, despite the fact that the united states leads the world in the best death and infection rates. Thus, investors still view the united states as a place to safeguard their wealth and investments during times of currency markets crisis.

Cryptocurrencies comprise significantly less than 0.7% of the world’s investments, although they attract a disproportionate amount of attention from traditional and social media. The biggest cryptocurrency, Bitcoin, is even labelled as the ‘new gold’ by some media outlets. However, our findings show that investment in Bitcoin has became a high-risk strategy during COVID-19. Its losses exceeded currency markets losses across each of the ten largest economies on the globe. As shown in Table 1, Bitcoin dropped 46.5% in value on 12 March 2020, when the S&P500 index suffered a 10% loss. Therefore, Bitcoin failed miserably in its first proper test as a safe haven asset and has became an extremely speculative asset during COVID-19. In stark contrast, the biggest asset-backed cryptocurrency, Tether, has served as a safe haven for all ten economies against currency markets losses during COVID-19. Our findings on cryptocurrencies claim that investors should prefer asset-backed cryptocurrencies over cryptocurrencies not backed by any assets.

We conclude that traditional assets such as for example gold and silver didn’t protect investors’ wealth during days if they needed it the most. All safe haven assets aren’t necessarily safe by default throughout a currency markets crisis. Therefore, investors should exercise homework when buying potential safe haven assets during such an emergency. Our findings also claim that investors prefer liquid and stable assets such as for example Treasuries and the Swiss franc over gold and silver coins (i.e. silver and gold). Also, investors are prepared to adopt new safe havens like Tether – probably since it is pegged to other financial assets. Finally, our findings claim that media outlets, policymakers and regulatory authorities should exercise caution in classifying Bitcoin instead of traditional investments. Clearly Bitcoin isn’t the ‘new gold’, because it lost almost half of its value in a single trading day throughout a COVID-19 market selloff.


Baker, S R, N Bloom, S J Davis, K Kost, M Sammon and T Viratyosin (2020), "The unprecedented currency markets a reaction to COVID-19", Covid Economics 1: 33-42

Baur, D G and L T Hoang (2020), "A Crypto Safe Haven against Bitcoin", Finance Research Letters, 101431

Baur, D G and T K McDermott (2010), "Is gold a safe haven? International evidence", Journal of Banking & Finance 34: 1886-1898

Bofinger, P, S Dullien, G Felbermayr, C Fuest, M Hüther, J Südekum and B Weder di Mauro (2020), "Economic implications of the COVID-19 crisis for Germany and economic policy measures", in R Baldwin B Weder di Mauro (eds), Mitigating the COVID OVERALL ECONOMY: Act Fast and Do Whatever needs doing, Book, CEPR Press.

Cheema, M A, R W Faff and K Szulczuk (2020), "The 2008 Global FINANCIAL MELTDOWN and COVID-19 Pandemic: How Safe will be the Safe Haven Assets?", Covid Economics 34: 88-115

Low, R K Y, Y Yao and R Faff (2016), "Diamonds vs. gold and silver coins: What shines brightest in your investment portfolio?", International Overview of Financial Analysis 43: 1-14

Urquhart, A and H Zhang (2019), "Is Bitcoin a hedge or safe haven for currencies? An intraday analysis", International Overview of Financial Analysis 63: 49-57

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