Good As Gold: Investors Haven't Given Up On The Traditional Safe Haven

The SPDR S&P 500 ETF Trust SPY is down 11.4% year-to-date in 2022, but one age-old flight-to-safety investments is holding up just fine.

The price of gold is up 9.5% so far in 2022. SPDR Gold Trust GLD is up 4.6% year-to-date, while the VanEck Gold Miners ETF GDX is up 13.7%.

Gold Solves This: Bitcoin BTC/USD bulls have had a great run the past couple of years, and many argue that the popular cryptocurrency has replaced gold as the best way to protect your portfolio from downside in the stock market.

Unfortunately, market price action so far in 2022 has demonstrated that the price of Bitcoin is highly correlated to other risk assets, including stock prices. In fact, Bitcoin prices are down 26.4% so far in 2022, more than doubling the declines of the S&P 500.

Related Link: What Happened To Stock Prices The Last Time Wheat Broke Above $10? A Warning To Investors

There are plenty of reasons for investors to be seeking a safe haven for their cash these days, given the Federal Reserve is expected to begin raising interest rates this week, inflation is at a 40-year high and Russia's invasion of Ukraine has disrupted supply chains and raised geopolitical uncertainty.

While the invasion rattled the stock market, gold prices have remained remarkably solid in recent weeks since the invasion began.

Correlation And Diversification: Diversification is the most powerful tool for any investor to help reduce risk in a portfolio. To maximize diversification, investors need to identify market sectors and assets that have minimal correlation to each other.

When you have a portfolio of assets that are highly correlated, a market sell-off will likely drag down your entire portfolio all at once. However, if your assets have a low or even negative correlation, a stock market sell-off or a drop in one single market sector, such as the tech sector or energy sector, might not tank your entire portfolio.

Benzinga's Take: Gold has historically had a very low correlation with stock prices, making it a great way to protect your portfolio from a stock market sell-off. For investors looking for an effective inflation hedge that can hold up amid a broad stock market sell-off, gold may still be the best option in today's market.

Market News and Data brought to you by Benzinga APIs
Posted In: EducationCommoditiesMarketsTrading IdeasGeneralGold
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!