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Yagub Rahimov

6 July 2016

Forex Opinions Technical analysis

How to trade Safe Haven assets during Financial Crisis?


Whether politicians and analysts accept it or not, the world has entered into another crisis, and it seems like it will become more drastic financial crisis than the one in 2008 and there will be opportunities in safe haven assets. But do you know how to trade safe haven assets during financial crisis?

The current global crisis is not just based on the humanitarian crisis in the middle east, we have the Brexit vote which has created an EU-wide political crisis, Italian Banking crisis dragging the EU economy into a bailout disaster and increasing left wing powers pushing the world into more nationalistic movements. Hence, we are moving towards a likely Financial Crisis 2017.

Although, I wish Financial Crisis 2017 does not happen, since many people would lose their jobs and even more lives would be destroyed, I can also not rule out the financial opportunities it will create for those traders and investors seeking safe haven trade opportunities.

What are the most traded safe haven assets?

Among the most traded safe haven assets traders would always find the top 3 not changes:

    • Gold & Silver
    • Japanese Yen
    • Swiss Frank
    • How to trade Safe Haven assets during Financial Crisis?

      In times of crisis, safe haven assets will always over-perform the other financial instruments. You need to look for those assets that provide lower yields and the lower yield would reflect the risk of each asset.

      Of course, Gold will always do well at all times, since it will perform as a hedging opportunity. In general Gold demand would increase on long term and from time to time, during the prosperity period you can expect it to perform weaker.

      At the moment since central banks are entering into their fear mode and applying extra monetary policies, Gold prices are expected to continue their upwards move.

      Will Italian Banking crisis be contagious?

      With no doubt, Italy will have bigger impact on the EU economy that the Greek issue we had in 2014 and 2015.

      The reason why Italian Banking crisis is too much sensitive is due to the fact that the EU law change effective 1 January 2016 that any bailout would be subject to Cyprus-like bailout structure. Since, most of the retail bankers in Italy are the elderly keeping their savings in the banks, we could see a nationwide spark in the country as a reaction to so called "haircut".

      Furthermore, the banks in the EU are interconnected in a number of ways, bankruptcy of one large bank in the EU may create a domino effect on other EU countries as well as EU banks, even including the ECB since they hold debt from many EU countries.

      Cyprus troika "haircut" Bailout similarity

      Cyrpus bailout was initially intended to be 5% of all the deposits below EUR 100,000 and 10% on all deposits above EUR 100.000. However, once the Laiki bank went bankrupt the toll on people became even worse as people lost all their savings which was above EUR 100,000 as the EU's compensation fund did not cover any saving above EUR 100,000 level.

      Now, there are similar signals as we had in Cyprus but this time from Italy. Like in Cyprus, Italian banking rumors are increasing. As a trader you must know one thing very well:

      "Buy the Rumor, Sell the Fact!"

      It seems like, it is the perfect opportunity to buy the rumor, to short sell the Italian banking stocks, pull funds out of the Italian banks and limit Euro exposure. The Italian Banking crisis signal is already triggered by the Italian Consob where short-selling of certain stocks are already banned. 

      To learn more about how to trade safe haven assets during financial crisis, watch the video analysis carefully and make sure to have pen and paper with you. 

      FCMForex financial crisis Brexit Webinar gold Italy

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