Safe-Haven Assets Rally as China Virus Cases Spike

The euro fell to a 4 1/2-year low against the Swiss franc on Thursday and the yen strengthened as investors sought safe havens
February 13, 2020 Updated: February 13, 2020
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Safe-haven assets like gold and the Japanese yen rallied, while stocks suffered a pullback across the globe after China reported a sharp spike in the number of new coronavirus cases.

The euro fell to a 4 1/2-year low against the Swiss franc on Thursday and the yen strengthened as a wave of risk-off sentiment washed over investors.

After weakening to a 3 1/2-week low a day earlier, the yen gained 0.3 percent against the dollar on Thursday and climbed to a four-month high versus the euro.

Epoch Times Photo
Japanese yen / Euro currency pair performance on Feb. 13, 2020. (Courtesy of TradingView)

The Swiss franc strengthened against the euro, with the Eurozone currency dipping to 1.0622 Swiss francs, below its 2016 trough of 1.0623 and its lowest level since August 2015.

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Swiss franc / Euro currency pair market performance, on Feb. 13, 2020. (Courtesy of TradingView)

Gold, a traditional harbor in times of crisis, also saw gains in Thursday trading, with the spot price hitting around $1577 an ounce.

Epoch Times Photo
Gold spot price on Feb. 13, 2020. (Courtesy of TradingView)

“Gold provides growth and positive performance when other assets are selling off,” said David McAlvany, CEO of the McAlvany Financial Companies and founder of Vaulted, a gold investing app.

“The benefit of owning gold alongside other more traditional assets, is you increase total returns and decrease volatility by having an asset which behaves in a countercyclical way,” McAlvany told The Epoch Times.

“Gold acts like insurance,” he added.

Gold
(PAUL FAITH/AFP/Getty Images)

‘Can’t Help But Move to Risk-off Trades’

On Thursday, China’s Hubei province, the epicenter of the coronavirus outbreak, reported 14,840 new cases of the virus as of Feb. 12, up from 1,638 new cases on Tuesday. The number of deaths in the province rose by 242, a daily record, to 1,310, according to official figures, which carry an overcast of uncertainty due to widely reported questions around accuracy and manipulation.

“When you see numbers like this, you can’t help but move to risk-off trades, which means buy the yen and sell stocks,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo, in comments to Reuters.

Wall Street’s main indexes eased from record highs and remained choppy on Thursday, while a day earlier, investors bought on signs that the virus spread was slowing, lifting the benchmark S&P 500 and the Nasdaq to their third straight closing highs.

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S&P 500 index on Feb. 13, 2020. (Courtesy of TradingView)

The VIX, which measures volatility in the S&P500, spiked on Thursday as coronavirus news buffeted markets, but then fell, suggesting some easing of investor concern.

Epoch Times Photo
Chart showing S&P 500 volatility, on Feb. 13, 2020. (Courtesy of TradingView)

“It seems as if every time there’s new coronavirus news, the market sells off and then quickly rebounds. Sometimes in a day or two, sometimes even the same day,” said Marc Lichtenfeld, Chief Income Strategist at The Oxford Club, in an emailed statement to The Epoch Times. “Short-term corporate earnings may be negatively affected, but there likely won’t be much long-term impact,” he predicted.

“Investors that own solid companies should stay the course and not worry about jumping into safe havens because of the virus,” he added.

McAlvany presented a nuanced take on safe-haven asset allocation, noting a range of complex factors affecting risk perception and investor sentiment.

“Uncertainty is the key word,” he said. “Gold can be driven higher off of geopolitical uncertainty (temporary moves), political uncertainty (slightly longer-term impact), or financial market uncertainty, which can trend for months or even years in the case of recession or significant secular trend changes.”

“Gold is highly reactive to stock market instability, and massive central bank money printing,” he added. “If we see either of these factors, or both in 2020, the price will skyrocket.”

“I don’t know where coronavirus goes from here, but the uncertainty factor changes the perception of the marketplace of where you should be putting your money,” McAlvany said, “and you can already see the footprints of dollars moving to safe havens.”

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