In view of the turbulence in the banking industry, investors have switched to asset classes that promise more security. Which investments benefit and how much protection they offer.
Actually, the world has completely different concerns in view of the Ukraine war. And yet, once again, the banks are at the epicenter of an impending financial tremor. In such uncertain times, many investors run to “safe havens” designed to protect their assets. What “safe havens” are there? And are they really as safe as they might seem at first glance?
Government bonds – actually a risk-free interest rate?
Debt securities from countries with high credit ratings are considered a safe investment haven par excellence. “These include primarily the United States, but also European countries like Germany,” says Michael Klawitter, bond expert at Dekabank. The special thing about such government bonds is that their debtors can be considered almost indestructible. A payment default, as can occur with consumers or companies, is considered to be rather unlikely. In addition, the securities offer a fixed rate of interest, i.e. a reliable flow of payments.
However, even the safe bond haven brings with it problems. As is the case now, interest income can be wiped out by high inflation, which can lead to a loss of assets. In addition, existing bonds lose value in times of rising interest rates. This is not a problem if the paper is held until the end of the term. However, if they should or must be sold earlier, price losses occur. That’s one reason so many mid-sized US banks are currently struggling financially.
Gold – does the precious metal really always shine?
Gold has long been considered the epitome of prosperity and wealth. This is also the case today: on the financial markets, investors head for the precious metal when things get uncomfortable on the stock exchanges. In view of the turbulence in the banking sector, the gold price rose above the 2000 US dollar mark for the first time in a long time on Monday. An advantage of gold is that it is not printed paper but has intrinsic value. “Gold has basically proven itself as a stable investment for thousands of years,” says economist Ralfcircul from the Landesbank Hessen-Thüringen. In addition, it is used for the production of many high-quality industrial goods.
But gold also has weaknesses. Like its “little brother” silver, the precious metal does not generate any regular income such as interest or dividends. This makes it less attractive in times of rising interest rates. Just like last year, when gold hardly rose despite the Ukraine war. Back then, a second opponent of gold kept the price low: the US dollar. Since precious metals are usually traded in the world reserve currency, the purchase of gold becomes more expensive and therefore less attractive for many investors as the dollar rate rises.
Yen and francs – always a safe bet, right?
There are some world currencies that investors value as a safe alternative. In addition to the US dollar, this includes the Japanese yen. One reason for this lies in the high foreign assets of the Japanese, as Helaba expert circulation explains. “When the world gets turbulent, Japanese investors withdraw foreign investments and bring them home.” This is why the yen often appreciates in times of crisis. However, it is questionable whether foreign investors should rely on this effect. Because the yen can also depreciate sharply, as the past year has shown.
It is not surprising that the Swiss franc is not benefiting from the banking turmoil. Because with Credit Suisse, a major Swiss bank stands for the problems in Europe. High stability is normally associated with the Swiss currency. This became clear in the euro debt crisis ten years ago. At the time, the franc was in such high demand that the Confederates had to use a special mechanism to protect themselves. Otherwise the economy would have suffered even more from the appreciation of the franc. A safe haven can also become a burden.
Bitcoin – alternative currency or investment risk?
Banking woes embolden cryptocurrency advocates. The Bitcoin price has recently risen from a good 20,000 to around 28,000 US dollars. Crypto entrepreneur Peter Grosskopf from Unstoppable Finance points out that Bitcoin was created during the last financial crisis as an alternative to the classic financial system and is seen as a bet against this system. There are other reasons for the rising Bitcoin. “But the jumps in prices in recent weeks are certainly also related to the difficulties in the banking sector.”
However, crypto investors cannot rely on Bitcoin & Co. continuously increasing in value – prices often fluctuate greatly. Because there are many risks, also because some players in the industry have to nibble on the consequences of the collapse of the crypto exchange FTX. It is also unclear what the consequences would be of strict regulation of Bitcoin and other cryptocurrencies in the US, which is being pushed by US President Joe Biden.
Store digital assets yourself – why?
Crypto fans say “Not your keys, not your coins”, expressing the belief that investors can only be sure of their crypto holdings if they are stored in a digital wallet (“wallet”) that only they own have keys. A trend towards self-hosted wallets and hardware solutions has been observed since the collapse of the crypto exchanges FTX and Celsius, says Peter Grosskopf, who offers a corresponding solution with his company. The trend appears to have intensified with the banking crisis.
When storing your own crypto values with sticks such as Ledger and BitBox, however, mishaps happen again and again, which can lead to a total loss of the stored values. The case of the British bitcoin investor James Howells, who accidentally disposed of a hard drive containing 7,500 bitcoins in 2013, is legendary. Howells suspects the disc is on a rubbish dump in Newport, south Wales, and has been looking for the data carrier there for years, which today would be worth more than 200 million euros.
Source: Stern
