Gold’s The Safe Haven Of Choice Right Now, But It Might Not Stay That Way

Gold’s The Safe Haven Of Choice Right Now, But It Might Not Stay That Way
Stéphane Renevier, CFA

almost 2 years ago1 min

Gold and long-term government bonds have historically traveled in lockstep, which makes sense: they’re both safe haven assets that’ll help protect your portfolio when the economy judders to a halt. But even now we’re on shaky ground, their prices have recently gone their separate ways: gold’s hit nearly $2000 in 2022, while an exchange-traded fund tracking the price of long-term bonds has slipped to around $1500. So what gives?

In a word: inflation. Gold prices typically rise when inflation is high, given that it’s a real asset with a relatively fixed supply whose value won’t be eroded like fiat currencies. Bond prices, on the other hand, tend to fall in the same environment, since the value of the future income they offer will be eroded. So with fears around inflation intensifying over the past few months, it stands to reason that gold has risen and long-term bonds fallen.

But while you might be tempted to opt for gold if you’re expecting economic growth to slow down, you might want to pause. Because if that happens, inflation should start to recede, and long-term bonds should give you more bang for your buck than gold. That means, it’ll pay more to rely on them as your safe haven asset at these prices – via, say, the iShares 20+ Year Treasury Bond ETF (ticker: TLT, expense ratio: 0.15%).

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