TURMOIL in the Middle East has sent investors scrambling for safety once more, reigniting a debate over which assets truly offer protection in times of stress.
The choice is complicated, as traditional refuges behave unpredictably. Gold has swung sharply and the dollar – which has been out of favour in the past year – has bounced back.
The dollar has arguably performed the best among safe havens this week.
The dollar index, which tracks the US currency against six others, is up 1.5 per cent. The dollar has even gained against the Swiss franc and yen, which both typically outperform at times of market stress.
That’s particularly notable as the dollar weakened when stocks fell following last April’s tariff turmoil, raising question marks about its safe-haven status.
It’s short-term dollar cash that’s in demand, not other dollar assets, flow data shows. Of course, the US is a net energy exporter, so a crisis like this that sends benchmark Brent crude oil above $80 a barrel should help.
Government bonds have struggled to attract the kind of safe-haven flows typically seen during geopolitical shocks, with investors trading them primarily on the inflation outlook rather than on their defensive qualities.
Gold’s safe-haven credibility is strong, judging by its 240 per cent surge so far this decade.
Yes, it’s proving volatile too, falling sharply on Tuesday. Analysts reckon that was partly because investors sold top-performing assets to make up for losses elsewhere, as concern about the Middle East conflict whacked market sentiment.
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