A few days ago it was analyzed in this blog in the article:“Gold: Is an investment alternative” this option as a safe haven ( safe haven ). Yet another asset that also has the honor of making this paper is the US dollar.
An easy and effective way to observe the evolution of the dollar in a global context is through the US Dollar Index (USDX). This index measures the value of the USA against a basket of six currencies dollar: euro, yen, pound sterling, Canadian dollar, Swedish krona and Swiss franc, with different weighting each.
The following graph shows the evolution of this index in the last 3 months, and specifically the reaction can observe upward from the highs in late April (26/4) and subsequent fall of the SP500, after a period laterality.
As is illustrated in the recent crisis of the euro, the dollar has acted against other safe haven assets such as equities, but have you always been like this inverse correlation with equities?
What you would expect is that if the purchasing power of a currency decreases the price of assets (stocks, commodities, property, food …) rise and vice versa. However, this is not always the case, because when robust growth occurs, an equity market can upload while its currency, supported by the arrival of capital from foreign investors.
A clear example of these two situations we see in the graph below, which compares the evolution of the SP500 and the USDX from 1996 to the present.
Until early 2003 correlation is observed entering the US currency and equities, but from here and until now disappear and observe how in moments of panic major crises has played his role perfectly safe haven.
Apparently decorrelation would be an effect of loose monetary policies of the American administration. Detacable is that many analysts attribute the rebound from the lows of March 2009 to the fall of the dollar and the consequent appreciation of assets.
Having regard to the current scenario of decorrelation and made shelter, what would choose? , Does the gold or the dollar?
We will use ETFs that follow the gold (GLD) and the Dollar Index (UUP) and visual and quantitatively compare their evolution since the beginning of the crisis in mid-2007 to the present.
Gold (GLD) with an increase of 81.2% compared to a meager 4.9% of the dollar (UUP) wins the game, the price of greater volatility. In times of panic the dollar has acted as a shelter, but in the long run has been penalized unlike gold, which in addition to serving as a shelter has also managed to maintain the type in longer periods.
Perhaps the answer is not binary but has to attend to policy portfolio diversification, but it can be interesting to reflect on this if we want to diversify our portfolio with safe – haven assets and properly supported weigh our level of risk.
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