When it comes to funding forex markets, safe havens are regarded as investments that are anticipated to increase or retain their value, even when the markets begin to experience turbulence. The reason why investors opt for safe havens is to assist them to limit the exposure they have; in case the forex markets start to take on a downward trend.
But this doesn’t always work, as what may have been projected by a forex prop trading firm to be a safe haven may end becoming a rather disastrous investment. As such, what is seen as a safe haven investment will vary from firm to firm and investor to investor. It’s upon you to conduct due diligence before you make any investment.
How to Understand Safe Havens
When it comes to funding forex, you have to note that the purpose of having a safe haven is to assist you to diversify your investment portfolio. Diversifying the portfolio will become beneficial to you when the market becomes too volatile. In many cases, when the market begins to fall or rise, it’s only for a short time.
But this is not always the case. The last economic recession, for instance, lasts for more than a few weeks. It was a period that saw many investments fall to low prices, with some investors losing all or almost all of their investments.
Even though these kinds of systemic events can’t be avoided, a savvy investor is one who will purchase safe-haven assets that aren’t negatively connected to normal markets in the course of a downturn. This is a savvy investment decision, as when many markets begin to lose their value, the safe haven will either increase its overall value or retain the previous one.
Gold as a Safe Haven
For years, many forex prop trading firm has considered this yellow metal as an important value holder. By itself, gold is a physical commodity, which means that it can’t be printed in the same manner as fiat currency. In addition, its value will not get affected by any government decisions touching on the prevailing interest rates.
The fact that this metal has for many decades continued to maintain its overall value, most investors consider it the best safe haven when the markets are in turmoil. Whenever the markets are hit by adverse events, a majority of investors immediately begin to pile up on their gold reserves.
As they do so, its market value begins to rise as well. Furthermore, whenever there are fears of impending market inflation, gold prices also start to increase. This is because its overall value is based on the U.S dollar. This is expected to continue in 2020, especially given that commodities such as livestock, copper, corn, and sugar tend to be negatively correlated with bonds and stocks.
While gold can’t always be expected to maintain its value when the markets are turmoil, past actions have shown that it’s the perfect safe haven. There’s, however, a need for an investor to carry out their research before making any investment.