A University of Cape Town (UCT) Department of Finance and Tax study into the behaviour of financial markets during instability has found that gold – long considered the ultimate “safe haven” asset – lost much of its shining reputation after the Covid-19 pandemic, while unglamorous agricultural commodities like corn and wheat became meaningfully better portfolio diversifiers.
The study examined how hard commodities (gold, silver, and platinum) and soft commodities (corn, soybeans, wheat, and livestock) moved in relation to major industry sectors in the US – ranging from tech and energy to healthcare and real estate – during periods of market turmoil, most notably the Covid-19 crisis.
When financial markets tumble, investors typically try to protect their money by spreading it across assets that won’t all fall at the same time.
Gold has traditionally been the go-to option for this: something investors can hold on to when stocks are crashing on the assumption that its value holds steady or even rises. But this research suggests that the assumption doesn’t hold as reliably as it used to.
Using two sophisticated statistical techniques to track how commodities and sectors moved together over time, the researchers found that gold’s protective power against sectors like financials and industrials largely evaporated after the pandemic. Silver and platinum told a similar story: both started moving more closely in step with the industries they were meant to protect against – the opposite of what one would want from a safe haven.
Soft commodities, by contrast, held up better.
Corn and soybeans showed some genuine (if modest) safe haven qualities, and wheat did too, albeit less consistently. Interestingly, livestock was the one soft commodity that didn’t hold up, tracking more closely with several sectors after the pandemic and losing much of its protective value.
The researchers also modelled what an ideal, risk-minimising portfolio would have looked like before and during Covid-19.
The shift was striking: the ideal allocation to soft commodities like corn and wheat increased across all sectors during the pandemic, suggesting investors could have meaningfully reduced their risk by holding more of them. Gold’s story was far messier. Its ideal allocation increased in some sectors such as energy and consumer discretionary, but actually decreased in others like healthcare and consumer staples.
Associate Professor Chun-Sung Huang from UCT’s Department of Finance and Tax, one of the study’s authors, says the findings challenge a long-held assumption in investing.
“The findings suggest that gold’s traditional role as a strong safe haven and hedge asset quietly deteriorated after the Covid-19 pandemic, and that silver and platinum both showed stronger positive interdependence with sectors, exposing investors to decreased protection during the turmoil,” he says.
“Soft commodities were not strong safe havens either, but corn and soybeans – and wheat to a lesser extent – showed weak safe haven characteristics,” Prof Huang adds. “However, as with silver and platinum, livestock showed increased positive coherence with sectors during and after the pandemic, reducing its safe haven and hedge potential.”
The research challenges the idea that gold is a universal, one-size-fits-all shelter in a crisis.
Its usefulness varied a lot depending on the sector an investor was trying to protect. The broader lesson for investors and portfolio managers is that leaning on gold alone during a crisis may no longer be enough – and that a more diversified mix, including less glamorous options like corn and wheat, could offer sturdier protection the next time markets are shaken.