Safe Havens? No Such Thing

Worth pondering, from GSAM’s Jim O’neill:

For many weeks, investors and journalists have been asking for my views on the next safe havens. My usual response, especially since the bold actions of the Swiss National Bank, is that such things don’t really exist. Many instruments and currencies especially, can sometimes appear as safe havens, but as we have seen with the CHF, once policymakers choose to pursue certain policies, any notion of safe haven rightly vanishes.

The decline of the Swiss Franc immediately after the SNB’s move to announce a “floor” under the EUR/CHF at 1.20 was probably the fastest and largest single currency move in the history of major currency movements since floating. This should make all market participants think long and hard about “safe havens”.

In this past week, the decline in gold prices has been dramatic, exhibiting the largest weekly fall since 1983. Not bad for a safe haven? Following the reversal of the Swiss Franc’s strength, it is tempting to explore the idea that the “crisis” might be coming to an end and, indeed, when one looks at the value on offer in equity markets and the inevitability of some major G20 policy response, it is not just idle temptation. For now, it is perhaps wiser to assume the gold decline is a savage correction, but it could be the end of its rally. It certainly has experienced some damage to many chart technicians’ views.

I am never entirely convinced about the idea of a persistent safe haven as it really depends on the economic and policy circumstances.


disclosure: long $GLD Oct calls, long $GDX vs short $GLD

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