Investors Are Rushing to Gold And Bonds As Stock Market Continue Tumbling

Investors are turning to gold and bonds as stock markets continue tumbling amid increased trade tension between the United States and China.

Trump's threat last week to impose tariffs on $300 billion more Chinese imports sparked investor fears. Beijing's decision to let its currency fall below the symbolic ratio of seven yuan to one dollar, which the U.S. responded to by labeling China a currency manipulator, has further sparked fears about the escalating trade war.

After stocks registered their worst week of year and the Dow Jones Industrial Average suffered its sixth-largest point drop in history on Monday, investors are spooked and looking for a safe investment haven. Although markets rebounded on Tuesday, with the three major U.S. stock indices rising between 1.2 and 1.4 percent, they dropped again on Wednesday.

As the stock market has slid, the value of gold has risen sharply. Spot gold is now priced above $1,500 per ounce, up from about $1,440 per ounce on Thursday. Goldman Sachs predicted that the price of gold, a more stable but less profitable investment than stocks, could rise to $1,600 per ounce.

The price of spot silver is also rising and reached a 13-month high of $17.01 per ounce. The value of Bitcoin rose sharply over the weekend and on Tuesday climbed above $12,000 for the first time in four weeks.

Investors have additionally flocked to government bonds, whose yields have an inverse relation to their price. As investors turn to bonds, which, like gold, are more dependable and less profitable than stocks, the 10-year bond yield rate quickly declined. It fell to a yield rate of 1.595 percent. At the end of July, the yield rate was at 2.067 percent, and at the end of December, it was 2.69 percent.

While both government bonds and gold offer a safe haven for short-term investments, they don't provide the optimal long-term strategy. The stock market is prone to rapid changes, and investors who place too much money in bonds and gold will suffer over time, sacrificing profitability for stability.

"Gold in particular is often seen as a safe haven investment...but has not held up over the long haul relative to either the stock market or inflation," Greg McBride, the Chief Financial Analyst for Bankrate.com, told Newsweek, noting that the stock market is prone to fluctuate and investors were likely over-reacting based on short-term volatility.

"With interest rates below 2 percent, the appeal of bonds is very limited and investors will quickly move back to equities once the skies clear and the prospects look brighter," McBride said.

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An investor monitors a screen showing stock prices at a securities company in Hangzhou in China's eastern Zhejiang province on August 6. AFP/Getty Images
Investors Are Rushing to Gold And Bonds As Stock Market Continue Tumbling | U.S.
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