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Are Consumer Staples Stocks a Better Safe Haven Than Gold?

Last Updated March 4, 2021 2:41 PM
Sebastian Bowen
Last Updated March 4, 2021 2:41 PM
  • Gold is traditionally the ‘safe haven’ hedge asset, yet has provided lackluster portfolio protection in the face of the Dow collapse.
  • Bitcoin’s reputation as ‘digital gold’ is also in tatters.
  • Consumer staples stocks could prove a better way to protect capital in uncertain times, judging by recent data.

Gold is touted as the ‘ultimate safe-haven’ asset. It’s physical nature, ancient allure and continued relevance long after the end of the gold standard still translate to considerable respect for the yellow metal as a legitimate asset class – alongside stocks, property and bonds.

Yet gold bugs would be nursing some disappointment in recent weeks as the gold price (despite a brief surge) has failed to outshine the collapse of the Dow Jones Industrial Average and the spread of the coronavirus.

The Dow last set a new record high of 29,551.20 on Feb. 12. By Tuesday’s close, it stood at 25,018.16 – a 15.3% drop peak-to-trough.

On Feb. 12, the price of gold was $1,565 per ounce. On Wednesday, it stood at $1,667 an ounce, a 6.5% rise in the same period.

Gold would have covered less than half of the losses that the Dow has suffered from Feb. 12 to today. A useful position to have held, but hardly a safety net for stocks.

Bitcoin loses potential hedge status

Far from cementing a status as a ‘hedge for the modern age,’ bitcoin has proved the opposite in recent weeks.

On Feb. 12, bitcoin was priced at $10,350 but has since collapsed 24.2% to $7,846. It’s a performance worse than the Dow Jones and one that dispels the notion that bitcoin is ‘digital gold’ – exposing more correlation with stocks than the precious metal.

Peter Schiff questions the purpose of bitcoin. | Source: Twitter 

Consumer Staples are Just as Good as Gold

Consumer staples stocks are regarded as the safest stocks to hold in a portfolio and have upheld this reputation convincingly in recent weeks. Since this sector is defined by products essential for living, it’s completely logical that stocks in this space are characterized by resilience to economic shocks.

Take cleaning products manufacturer Clorox Co (NYSE:CLX). Clorox stock has outshone gold by rising 6.7% since Feb. 12 and also offers a 2.42% dividend yield.

Clorox Stock defies the Dow. | Source: Yahoo Finance 

Another consumer staples giant, Walmart Inc (NYSE:WMT) stock, has barely felt a scratch either:

Walmart shines. | Source: Yahoo Finance 

Hedging stocks with stocks might upset purists and gold bugs. But the right stocks can effectively protect a portfolio just as well as ingots of metal. And unlike gold, stocks can offer dividend yield too – another increasingly scarce commodity these days.

So far, consumer staples stocks remain an equal, if not superior, portfolio hedge to gold.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.