The Safe Asset Shortage Conundrum and Why Gold is a Safe Asset

Safe assets play an important economic role as a store of value. Remarkably, gold is generally not considered a safe asset despite the fact that both gold and government bonds are considered stores of value and both are risky in the short-run as highlighted recently by the Silicon Valley Bank banking crisis. This paper demonstrates that gold is a safe asset based on commonly used definitions of safe assets and based on the performance of gold over time. The paper also argues that the “safe asset shortage” is not a market-based natural outcome but exacerbated by central banks’ asset purchases. We demonstrate that gold became more bond-like since the 2008 financial crisis