In the first quarter of the year, the Ghana Stock Exchange witnessed a decline in trading activities mainly due to the impact of the Coronavirus pandemic that has disrupted the economic strength of world economies and created a swooping wind of uncertainty.
Many investors have thus sought solace in safer havens like gold, the US Dollar, and the Japanese Yen.
Drop in Ghana Stock Exchange Composite index (GSE-CI)
According to the First Quarter Bulletin Report, the Ghana Stock Exchange Composite Index (GSE-CI) dropped by 4.3%, indicating -97.54 points at the end of Q1-2020 although an improvement from the same period last year which witnessed a decline of 4.6% indicating -117.71 points.
The weak performance of the GSE-CI in the period was attributed to the significant loss in value of stocks in the food & brewery, distribution, finance, agriculture, IT sectors, and the manufacturing sector. The stocks of the manufacturing sector declined in value by 12.6%.
Around the same time, however, gold prices increased in the first quarter of this year. The price of gold hit US$1,560 in January 2020 compared to US$1,292 in 2019 and further increased to US$1,590 in March this year against US$1,300 in March of last year. The rise in value created a safe space for investors.
Besides Gold, the US Dollar and Japanese Yen emerged strongly against other major currencies on the international market as most investors abandoned stocks, riskier assets, and currencies. The Coronavirus brought with it panic and fear and as such, most investors panicked in the wake of the coronavirus outbreak and sought safety in the Dollar. The US Dollar ended the quarter with a gain of 6.5 percent and 2.2 percent against the Pound Sterling and the Euro respectively.
So, why did Gold and the US Dollar become safer havens for investors?
Gold as a safe haven
Throughout history, gold is seen as a priceless, and valuable commodity. Gold is interwoven into cultures, where people pass on and preserve their wealth to the next generation and the generations after. It has maintained its value over the years compared to fiat currencies and other assets. This makes gold quite resourceful in uncertain times.
Historically, gold has been a strong hedge against inflation since its price increases when cost of living increases. During periods of inflation, fiat currency tends to lose its value but the price of gold tends to rise due to gold being priced in that currency unit. This moreover makes gold a good store of value. As a good store of value, during uncertain times people can safeguard the value of their wealth.
US Dollar as a safe haven
Despite the record-breaking cases of the Coronavirus in the United States and the devastating impact on the global market, the US Dollar has remained a safe space for most investors. Towards the end of March, the US Dollar gained more than 4% on the US Dollar Index. Unlike other trading currencies the US Dollar isn’t as volatile and at the same time has great appeal due to the larger political and economic stability of the United States.
According to the United States Federal Reserve, as of August 5, 2020, there was $1.95 trillion worth of Federal Reserve notes in circulation across the world.
Lately, however, the Japanese Yen and Euro have been cementing their safe-haven status at the dollar’s expense.