VoxEU Column COVID-19 Financial Markets

The influence of the COVID-19 pandemic on safe haven assets

The COVID-19 pandemic has severely impacted the financial markets, which has triggered a flight from risky assets to safe haven assets. This column compares the performance of the safe havens across the world’s ten largest economies during COVID-19 and the 2008 Global Financial Crisis. The findings suggest that the character of safe haven assets has changed since the 2008 crisis. Gold, the traditional safe haven asset, has lost its glitter. However, the Swiss franc, the US dollar and US Treasuries retained their safe haven status, and Tether, a cryptocurrency, shows some promise.

The COVID-19 pandemic has evolved from a health crisis into a severe economic crisis as countries around the world closed their economies and prevented the movement of, and interaction between, people as a means to slow the spread of the virus. The economic crisis initially led to a massive selloff in the financial markets as investors transferred risky assets into safe haven assets to protect their wealth (Bofinger et al. 2020, Wyplosz 2020). Consequently, COVID-19 has struck the stock markets more severely than any previous infectious disease outbreak, including the 1918 Spanish Flu (Baker et al. 2020).

The pace and severity of investors fleeing from risky assets to safe havens raises the question: How safe are the safe haven assets? Traditionally, precious metals (gold and silver), currencies (US dollar and Swiss franc), and US Treasuries (T-bill and T-bond) are regarded as safe havens during times of crises. Moreover, a few researchers claim that cryptocurrencies such as Bitcoin have also joined the rank of safe haven assets (e.g. Urquhart and Zhang 2019). However, others view cryptocurrencies as a risky asset instead of a safe haven (e.g. Cheema et al. 2020). Therefore, Baur and Hoang (2020) suggest using asset-backed cryptocurrencies, such as Tether, as a safe haven against Bitcoin during extreme market movements. Tether is the first and largest asset-backed cryptocurrency (i.e. a stablecoin). Stablecoins are cryptocurrencies that are pegged to other stable assets such as gold and traditional currencies. Therefore, stablecoins, in theory, would become as stable as the pegged assets.

In Cheema et al. (2020), we examine the efficacy of safe haven assets during the COVID-19 pandemic and compare their performance during the 2008 Global Financial Crisis (GFC). More specifically, we ask the question: Have traditional assets that were safe havens during the GFC (e.g. Baur & McDermott 2010; Low, Yao & Faff 2016) maintained their safe haven status during the COVID-19 pandemic, since times have changed substantially (for example, investors now also have the opportunity to use cryptocurrencies as a safe haven asset in place of traditional safe haven assets such as gold)?

Our analysis includes the ten largest economies – the US, China, Japan, Germany, the UK, France, India, Italy, Brazil and Canada – since investors prefer to invest in these markets. Safe haven assets should earn positive or, at worst, close to zero returns during financial market turmoil if they possess the qualities of a safe haven. We use descriptive statistics and regression with a GJR-GARCH correction to examine the performance of safe haven assets. Both methods yield similar results.

Our first finding is that gold has lost its glitter during the COVID-19 pandemic even though it was a safe haven during the GFC. Table 1 shows gold’s poor performance. The table lists the returns of safe haven assets on the days of the ten largest losses in the S&P 500 during the COVID-19 pandemic. Clearly, gold returns generally moved in tandem with the ten extreme stock market losses in the S&P 500 during the pandemic, with seven out of the ten negative gold returns. For instance, gold lost 4.90% of its value on 12 March 2020 while the S&P500 index incurred a 10% loss. The obvious question is what has happened to gold as a safe haven asset during COVID-19, when investors regarded gold as a safe haven during the GFC? We suggest that investors might have altered their views about gold as a stable asset since they were mentally scarred by gold investments between 2011 and 2015 when gold lost 45% of its value. The usual counterpart precious metal, silver, has not functioned as a safe haven in either crisis. Investors should be careful using silver as a safe haven during market turmoil.

Table 1 Extreme losses during the 2008 GFC and COVID-19 pandemic

Note: Panels A and B list the ten largest daily losses of S&P 500 returns and the respective returns of safe haven assets during COVID-19 pandemic and the 2008 GFC, respectively.

Our second finding is that the Swiss franc has served as a better safe haven asset than the US dollar during COVID-19 even though they were both safe havens during the GFC. As shown in Table 1, five out of the ten US dollar returns were negative, but only two Swiss franc returns were negative during the days of the ten largest losses of the S&P500 index. However, the daily returns of both the Swiss franc and US dollar varied between -1.10% and 1.58% per day during the ten extreme stock market losses, which are small variations. Therefore, they have helped protect investors’ wealth and maintained their safe haven status during COVID-19.

Our third finding is that the US Treasuries – T-bills and T-bonds – served as safe havens during both crises. As shown in Table 1, Treasuries recorded at least seven positive returns on the days of the ten largest losses in the S&P500. An interesting fact is that Treasuries have retained their status as a safe haven during COVID-19, even though the US leads the world in the highest death and infection rates. Thus, investors still view the US as a place to protect their wealth and investments during times of stock market crisis.

Cryptocurrencies comprise less than 0.7% of the world’s investments, although they attract a disproportionate amount of attention from traditional and social media. The largest cryptocurrency, Bitcoin, is even labelled as the ‘new gold’ by some media outlets. However, our findings show that investment in Bitcoin has proved to be a high-risk strategy during COVID-19. Its losses exceeded stock market losses across all of the ten largest economies in the world. As shown in Table 1, Bitcoin dropped 46.5% in value on 12 March 2020, when the S&P500 index suffered a 10% loss. Therefore, Bitcoin failed miserably in its first real test as a safe haven asset and has proved to be a highly speculative asset during COVID-19. In stark contrast, the largest asset-backed cryptocurrency, Tether, has served as a safe haven for all ten economies against stock market losses during COVID-19. Our findings on cryptocurrencies suggest that investors should prefer asset-backed cryptocurrencies over cryptocurrencies not backed by any assets.

We conclude that traditional assets such as gold and silver failed to protect investors’ wealth during days when they needed it the most. All safe haven assets are not necessarily safe by default during a stock market crisis. Therefore, investors should exercise due diligence when investing in potential safe haven assets during such a crisis. Our findings also suggest that investors prefer liquid and stable assets such as Treasuries and the Swiss franc over precious metals (i.e. gold and silver). Also, investors are willing to adopt new safe havens like Tether – probably because it is pegged to other financial assets. Finally, our findings suggest that media outlets, policymakers and regulatory authorities should exercise caution in classifying Bitcoin as an alternative to traditional investments. Clearly Bitcoin is not the ‘new gold’, since it lost almost half of its value in one trading day during a COVID-19 market selloff.


Baker, S R, N Bloom, S J Davis, K Kost, M Sammon and T Viratyosin (2020), "The unprecedented stock market reaction to COVID-19", Covid Economics 1: 33-42

Baur, D G and L T Hoang (2020), "A Crypto Safe Haven against Bitcoin", Finance Research Letters, 101431

Baur, D G and T K McDermott (2010), "Is gold a safe haven? International evidence", Journal of Banking & Finance 34: 1886-1898

Bofinger, P, S Dullien, G Felbermayr, C Fuest, M Hüther, J Südekum and B Weder di Mauro (2020), "Economic implications of the COVID-19 crisis for Germany and economic policy measures", in R Baldwin B Weder di Mauro (eds), Mitigating the COVID Economic Crisis: Act Fast and Do Whatever it Takes, Book, CEPR Press.

Cheema, M A, R W Faff and K Szulczuk (2020), "The 2008 Global Financial Crisis and COVID-19 Pandemic: How Safe are the Safe Haven Assets?", Covid Economics 34: 88-115

Cheema, M A, K R Szulczyk and E Bouri (2020), "Cryptocurrency returns and economic policy uncertainty: A multicountry analysis using linear and quantile-based models", SSRN.

Low, R K Y, Y Yao and R Faff (2016), "Diamonds vs. precious metals: What shines brightest in your investment portfolio?", International Review of Financial Analysis 43: 1-14

Urquhart, A and H Zhang (2019), "Is Bitcoin a hedge or safe haven for currencies? An intraday analysis", International Review of Financial Analysis 63: 49-57

Wyplosz, C (2020), "So far, so good: And now don’t be afraid of moral hazard", in R Baldwin and B Weder di Mauro (eds), Mitigating the COVID Economic Crisis: Act Fast and Do Whatever it Takes, a Book, CEPR Press.

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