What are safe haven assets? Why are they rising as Russia attacks Ukraine?

Stocks are plunging worldwide while emerging market currencies tumbled, led by the Russian Ruble, after Russia launched an attack on the Ukraine. Europe’s worst security crisis in decades has in turn triggered a flight to safety, which has seen the likes of gold and the Japanese Yen soaring.

JPY is stronger against all other Asian and G10 currencies amid the Russian invasion.

USDJPY has broken past its 50-day simple moving average (SMA), which has been a crucial support level in recent sessions, and could next test its 100-day counterpart.

NOTE: Stronger yen against the US dollar = lower USDJPY

 

What is a safe haven asset?

Safe havens are assets that investors and traders rush to for shelter in times of fear.

The prices of these safe havens tend to rise, or at least hold, due to the surge in demand for such assets during periods of greater uncertainty, as what we’re seeing now with Russia’s invasion of Ukraine. These assets help investors and traders protect their money when other “riskier” assets (stocks, emerging-market currencies, etc.) are plunging.

Some of the most popular safe haven assets include:

• Gold
   
• US Dollar
   
• Japanese Yen
   
• Swiss Franc

 

Why are these assets considered safe havens?

Here are some key reasons why markets attach safe haven status to specific assets:

• Global status: The US is the world’s largest economy. Hence, when things look scary elsewhere in the world, investors take refuge in the dollar on the belief that the American economy is strong enough to protect their wealth. Also, the buck is the most widely used currency in the world a.k.a. the world’s reserve currency, which translates into greater demand for the greenback in times of market stress.
   
• Government and financial stability: Switzerland is famed for its neutral stance when it comes to their dealings with the rest of the world. Hence, Swiss neutrality attracts investors to send their money into the country (capital inflows) for shelter when there’s a crisis on the global stage, raising demand for CHF and sending its value higher.
   
• Historical beliefs: For gold, it’s given safe haven status based on perceptions held by many, many people in the markets over a long period of time. After all, it’s also one of the oldest forms of currency. Markets buy up more gold during times of fear, even though the precious metal offers little in terms of real economic activity (try using a bar of gold to buy a loaf of bread and see how that works out). Gold also has the added appeal of having a limited supply (you can’t just print more gold out of thin air unlike fiat currencies), and its rarity and durability makes bullion appealing.

 

Which is the “best” safe haven asset?

Based solely on their performance so far this year, gold has outperformed the safe haven currencies. 

At the time of writing, the precious metal is trading around its highest levels since September 2020. 

 

Here’s how the safe havens have fared so far this year (at the time of writing):

• Gold vs. US dollar = 7.6%
   
• US Dollar (DXY) = 1.3%
  ^{​(DXY is a benchmark dollar index that measures USD’s performance against a basket of currencies: the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc )}
   
• Japanese Yen vs. US Dollar = 0.4%
   
• Swiss Franc vs. US Dollar = -1%
  ^{(although CHF is stronger against all other G10 currencies except for the US dollar, Japanese Yen, and the British Pound so far this year).}

 

Overall, risk aversion is the rising tide that lifts all safe havens, as market participants wait out their fears and anxieties over the escalating Ukraine crisis.

 

READ MORE: What the Ukraine crisis means for oil, gold, the Swiss Franc, the DAX, and the Russian Ruble?

 

safe haven Ukraine crisis Russia Sanctions risk aversion risk off Gold US Dollar USD DXY Dollar index USDJPY Japanese Yen USDCHF Swiss Franc