Safe-Haven Assets Could Present a Major Short-Term Risk

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Recent scares in the global markets due to the coronavirus have sent stocks tumbling, and safe-haven assets haven’t fared much better. The Dow Jones Industrial Average (DJIA) posted its largest-ever decline on Thursday, losing more than 1,100 points.

Amid the chaos, investors considered flocking to safe-haven assets like gold, silver, or BitcoinHowever, all these assets also saw dramatic declines—a situation that has left investors and analysts scratching their heads.

Influx of cash?

While the market has shown substantial weakness, investors have moved out of virus-affected stocks and into blue chips. This has greatly reduced risk but leaves safe-haven assets vulnerable to market swings.

In contrast, commodities and other assets have remained stable or declined. In particular, gold, silver, and Bitcoin have all seen lower price points as the market has been negatively impacted.

Danger, Will Robinson

This situation presents a particularly dangerous situation for investors. As these-safe haven assets reveal their lack of stability, the overall market shift could create a place of loss.

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Safe-Haven Assets Could Present a Major Short-Term Risk

Investors, spooked by recent coronavirus fears, may have evacuated positions in favor of stability. In response, however, they have not widely entered the gold and silver markets.

This could create a relative vacuum among safe havens and stocks alike. Sudden good news, like a lessened coronavirus threat, or lower impact, could push investors into these assets in a rush.

Why the danger?

The simple answer is that traders could be left holding the bags. A declining value could have caused a number of traders to short these assets, as the virus takes the wind out of their collective sales.

A sudden increase in value would drive investment into these assets, pushing them up rapidly. Often called a V shaped rebound, these safe-haven asset values could leave short sellers holding the bag.

Further, investors, fearful of further losses, could stay out of the market. However a sudden increase would mean missing out on virtually all possible gains. Whether Bitcoin or gold would be more intensely affected remains to be seen.


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