Dollar, bonds, or gold – which is the safest haven to hold?

2026-03-05 - 17:34

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. Here’s a look at how some of the favourites stack up: GREENBACK PASSES A TEST The dollar has arguably performed ‌the best among safe havens this week. The dollar index, which tracks the U.S. currency against six others, is up 1.5% (.DXY), opens new tab. 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 U.S. is a net ​energy exporter, so a crisis like this that sends benchmark Brent crude oil above $80 a barrel should help. “The dollar has some safe-haven characteristics, but it is context specific,” said Morgan Stanley ​head of FX strategy James Lord. And that won’t always be the case, he said, because U.S. policy uncertainty has eroded the currency’s safe-haven characteristics. NO SAFETY ⁠IN SOVEREIGNS 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. Fiscal considerations, such ​as Germany’s relaxation of its debt brake, to broader worries about heavier government borrowing have also outweighed haven appeal. Yields on Germany’s 10-year Bunds , the euro zone benchmark, have jumped 14 basis points so far this ​week. “Germany is a flight-to-quality kind of investment, but you don’t really want to be playing around at the long end of the bull market if they’re raising more debt,” Bryn Jones, head of fixed income for Rathbones, said. GOLD’S SAFE-HAVEN STREET CRED IS SOLID Gold’s safe-haven credibility is strong, judging by its 240% 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. But this shouldn’t detract from gold’s safe-haven status, which remains intact, given worries about inflation, geopolitics and high debt, they add. State Street said gold ​remained under-owned in portfolio terms, with gold exchange-traded fund allocations still under 1% of global fund assets, below the 5–10% range it cites as a strategic allocation range. “As a base case, $6,000 is more likely than $4,000 this year, and ‌we’re just ⁠above $5,000,” said Aakash Doshi, head of gold strategy at State Street Investment Management. “That’s a clear point to make.” CLASSIC FX REFUGES PUT TO THE TEST The Swiss franc and the Japanese yen , long regarded as currency havens, have slipped 1.2% and 0.8% so far this week. “The one that looks relatively attractive from a valuation perspective is still probably the Japanese yen. It stands out to me as one that can provide protection in this environment,” said Justin Onuekwusi, chief investment officer at St. James’s Place. But political uncertainty has added a layer of risk to the outlook for the yen after reports that Japanese Prime Minister Sanae Takaichi ​has voiced reservations about further rate hikes. Meanwhile, analysts ​caution that the franc’s upside may be constrained, ⁠given the Swiss National Bank’s warning that it stands ready to step in to curb excessive strength. “Elevated SNB intervention risks would likely diminish its haven attributes during the current shock,” Goldman Sachs strategist Teresa Alves said. DEFENSIVE STOCKS AREN’T HELPING Stocks often perform poorly at times of market stress, though some so-called defensive sectors, ​for example utilities or consumer staples, typically see smaller declines. But that hasn’t happened this time. The S&P utilities and consumer staples sectors are down 1% (.SPLRCU), opens new tab ​and 2.8% respectively this week, ⁠while the S&P 500 (.SPX), opens new tab is flat. In Europe, utilities are down 3% (.SX6P), opens new tab and consumer staples are down 4.5% compared to a 3% fall for the STOXX 600. This is partly because they’d already been doing well. One big investment theme, until the war began at least, was buying “hard assets” like infrastructure and industrials. More broadly, defensive value stocks have been outperforming growth stocks, and some have done very well. “When you’re investing in the classically defensive ⁠sectors at the ​level of current interest rates, you have to be much more disciplined about relative prices,” said James Bristow, portfolio manager ​at Templeton Global Investments. “I own shares in Pepsi, for example, ... (it) isn’t the highest quality company, but the starting point was very low ... that’s a different margin of safety from if you’re buying shares in, say, Nestle.”