OpenMarkets Weekly: What Is A “Flight to Quality”?

At a Glance

  • Sudden downward moves in equities are accompanied by an aversion to risk and large moves into perceived safe haven assets

So-called safe haven assets are those asset groups which historically have a negative correlation with stocks when they go lower.  Gold is perhaps the primary example. It has become a source of capital preservation in a safe asset during economic distress.

We witnessed a case study of this action in late February with a large move down in stocks. One can see the negative correlation between stocks and asset groups perceived to be safe havens for capital.  As stocks moved lower, it was accompanied by buying in the bond market and gold market, taking the latter to near-term highs.

We hear the term “flight to quality” a lot during these types of market events. Jack Bouroudjian breaks down exactly what that means in the video above.

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