Why gold is the only go-to safe haven from global turmoil - not bitcoin or bonds

By Mark Hulbert

Investors don't have as much confidence in U.S. Treasurys as a risk hedge

Gold has become investors' go-to safe haven.

Among the assets typically considered safe havens, gold (GC00) is the only one that rose in the wake of President Donald Trump's saber-rattling about Greenland. On Jan. 20, when the S&P 500 SPX fell 2.1%, long-term U.S. Treasurys BX:TMUBMUSD10Y - the traditional safe haven during times of geopolitical crisis - fell by more than they have in any other trading session since last July.

Whatever one could say about bitcoin, 'safe haven' is not among them.

Bitcoin (BTCUSD) performed even worse on Jan. 20, losing 3.8%. Losing this much on a day when gold rose 3.7% is just the opposite of what many of bitcoin's true believers would have predicted. For several years, they have referred to bitcoin as "gold 2.0."

Campbell Harvey was not surprised, however. Harvey is a professor of finance at Duke University's Fuqua School of Business. In an interview, he said that whatever one could say about bitcoin, "safe haven" is not among them.

Harvey points out that bitcoin's historical volatility has been "at least four-times greater" than gold's. There have been six occasions during bitcoin's still-young history in which it has lost more than 60% during a relatively short period of time - making it a "risk-on" asset rather than a risk-off safe haven.

It's important to point out that Harvey is by no means guilty of hindsight bias in claiming not to be surprised by gold and bitcoin's divergent reactions to Trump's Greenland threats. A paper of his entitled "Gold and Bitcoin" began circulating last fall in academic circles; in it, he argued that "given its singular characteristics, bitcoin is unlikely to replace gold as the preferred safe-haven asset of investors."

Consider, for example, the inverse correlation that has existed historically between gold and bitcoin. Based on all rolling 12-month periods since 2013, the correlation coefficient between these two assets is minus 27%. It's difficult to see how bitcoin could be a good substitute for gold if it often zigs when gold zags, and vice versa.

Also revealing are gold and bitcoin's divergent reactions to geopolitical risk. Consider their correlations with the Economic Policy Uncertainty Index (EPU) and the Geopolitical Risk Index (GPR), which measure different dimensions of geopolitical risk.

The EPU measures economic policy uncertainty, and has "spike[d] near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy."

The GPR measures "the threat, realization and escalation of adverse events associated with wars, terrorism and any tensions among states and political actors that affect the peaceful course of international relations."

The correlation coefficients of gold to the EPU and the GPR are positive, while bitcoin's correlations to these two risk indexes are both inverse. This confirms Harvey's argument that bitcoin is more a "risk-on" asset than a safe haven.

The bottom line? As U.S. Treasurys lose their status as the go-to asset in times of geopolitical turmoil, gold rather than bitcoin appears to be the major beneficiary.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

-Mark Hulbert

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