Reevaluate the Concept of the ‘Safe-Haven’ Asset

The Iran conflict and the resulting global energy shock have challenged the idea of a universal safe-haven asset. The U.S.-Israeli strike on Iran on February 28 triggered a sharp slump in gold.

Gold fell about 17% in March. That decline points to its worst month since February 1983.

Gold’s surprising weakness

Gold has lagged many risk assets. It underperformed high-yield credit, emerging market stocks, and frontier market equities.

Only silver performed worse among closely watched metals. Analysts say gold became untethered last year as central bank demand cooled.

Retail buyers and momentum traders pushed prices to a January peak. That peak reached $5,595 an ounce, followed by broad liquidation.

Dollar, Treasuries and official flows

The U.S. dollar has risen, but by less than 2%. Expected rate differentials do not favor further dollar strength.

Many central banks in Asia and the Middle East may run down FX reserves. They aim to finance higher import bills and cushion incoming inflation.

Holdings of Treasuries at the New York Fed dropped by about $75 billion in the last four weeks. Deutsche Bank estimates this equates to roughly $60 billion of foreign official selling.

Those sales are the largest net foreign official disposals since the COVID-19 pandemic. They are the second largest on record.

Implications for traditional havens

The Treasuries market may be very liquid, but it is no longer an automatic safe place. The dollar’s limited rise and official selling could weigh on U.S. debt.

The Swiss franc and Japanese yen face their own limits. The Swiss National Bank warned it is more willing to intervene in forex markets.

The yen sits near multi-decade lows. Japan imports almost all of its energy, reducing the yen’s appeal in this shock.

Investor responses and cash flow

Investors are shifting toward nimble trading strategies instead of buying traditional havens outright. The best response varies with crisis origins.

• In an energy shock, energy stocks may outperform.
• In a geopolitical conflict, defense names can gain.
• Trading strategies may outshine passive safe-haven bets.

Cash remains a consistent crisis performer. U.S. money market funds grew by about $60 billion since February 28.

Their total reached a record $7.86 trillion. Analysts expect this pool could surpass $8 trillion soon.

Reevaluate the Concept of the ‘Safe-Haven’ Asset

The recent turmoil shows there is no one-size-fits-all refuge in crises. Investors should reevaluate the concept of the ‘safe-haven’ asset and prepare flexible plans.

Global equity markets saw roughly $6 trillion wiped off values. Inflation pressures and an energy shock complicate traditional responses.

Columnist Jamie McGeever reported these observations. Editing was by Marguerita Choy. Published March 24, Orlando, Florida. Filmedogaz.com