Understanding safe haven commodities

Safe haven commodities are assets which are prized for their stability and resilience during times of economic distress. As inflation rates reach unprecedented levels and show no signs of slowing, understanding safe haven commodities and how to leverage them can provide you with a strategic edge.

We explore what safe haven commodities are and how you can harness their potential below.

What are safe haven commodities?

Safe haven commodities are tangible assets that retain their value (or even appreciate!) during times of market turmoil or economic uncertainty. They typically exhibit inverse correlation with broader financial markets, meaning their prices tend to rise when other assets like stocks or currencies experience significant declines.

Gold is a popular safe haven commodity, often experiencing price increases during periods of market volatility or geopolitical tension. Silver, although more volatile and influenced by industrial demand, also plays a role as a safe haven asset, particularly when gold prices are high.

What factors drive demand for safe haven assets?

Several factors, including geopolitical tensions, economic downturns and shifts in monetary policy influence the demand for safe haven commodities. For instance, the gold market saw significant activity in 2023 with prices reaching all-time highs driven by a weak U.S. dollar and anticipation of interest rate cuts by the Federal Reserve​.

Global crises such as the COVID-19 pandemic and geopolitical conflicts usually enhance the appeal of safe haven assets as investors seek stability.

Should I invest in safe haven commodities?

One of the primary advantages of safe haven commodities is their ability to diversify investment portfolios and mitigate overall risk.

Gold, for instance, often shows a low correlation with stocks and bonds, which can protect or even enhance your portfolio during downturns.

What are the best trading strategies for safe haven assets?

Trading safe haven commodities involves various strategies that can adapt to changing economic conditions and market forecasts. You can consider either the direct purchase of physical commodities or instead trade using exchange-traded funds (ETFs) or futures contracts.

If you’re going down the latter route, you can use various technical analysis tools and general commodity trading strategies to capitalise on price movements for safe haven commodities. Chart patterns (such as trendlines and support/resistance levels) can help you identify potential entry and exit points.

Indicators like the Relative Strength Index (RSI) or moving averages can provide further insight into momentum and trend direction.

Final thoughts…

Safe haven commodities like gold and silver are essential if you want to have a diverse portfolio during times of political and economic uncertainty.  Understanding the factors that drive their demand and learning how to trade these commodities effectively can help you mitigate risk and increase your returns in turbulent times.