Gold and cash-like instruments are safe-haven assets. Investors buy them when uncertainty and/or fear is rising.
Given the price of gold climbing steadily to a record high of $2,860, one could say fear and/or uncertainty is rising.
What could be driving fear and uncertainty, making gold and cash like investments attractive?
Well, it seems there are more than a few explanations.
First, inflation expectations in the US climbed to 4.3% in February, the steepest climb since November 2023.
Second, no matter what their final form is, US tariffs will be inflationary.
It is well accepted that gold is a good investment in times of inflation.
Third, fear surrounding the US fiscal situation, taxation and spending. The US budget deficit is 6% of GDP and could get worse with less government revenue due to the extension of tax cuts. If budget cuts are not forthcoming, uncertainty could arise.
Fourth the US stock market is up on high valuations and could have a painful correction in the next few months.
Finally, the risk of military engagement which has been hinted at by President Trump in situations like Greenland and the Gaza strip.
With all these concerns, it is no wonder that gold is at a record high. It is surprising the price is not higher.
Cash-like instruments such as stable coins and short-term bonds, either crypto or fiat, are also good in times of uncertainty, like gold. In times of uncertainty, investors feel comfortable in liquid stable currencies like the US dollar and the Euro. Short-term bonds are good safe- havens because an investor is not locked into the investment for a long time. They will either be redeemed, or can be sold.
Above all else, in times of uncertainty, liquidity is king.
Some say stocks are a good investment in times of uncertainty because of the ability to sell quickly when trouble hits. This is perhaps the case if an investor is extremely disciplined. But often the first phase of down move is characterized by investor denial; investors can’t believe it is happening and often freeze up like a deer in the headlights. It is not easy to be disciplined enough to get out quick. There is always that thought it may go back up.
So, in conclusion, for a portion of a portfolio when uncertainty is on the rise, gold, stable coins, short-term bonds, or crypto currencies may make sense.
This could be one of those times.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
