Where are the Safe Havens?

Another week, another panicked sell-off in US equities, and precious metals struggling again. Macroeconomic weakness, geopolitical tensions, and AI disruption are each rising and falling, taking turns weighing down global equities and assets. As waves of volatility ebb and flow, the overall temperature and reactivity rise, and investors begin to look for safe havens to park their capital. The logic has historically been simple: when equities struggle, you buy government bonds; when inflation is high and currencies are devaluing, you buy gold. But an inspection of classic investor safe havens (precious metals, government bonds, stable currencies, and defensive stocks) shows the havens aren’t looking so “safe” at the moment.
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Precious metals, particularly gold, have long been seen as the primary hedge against financial and geopolitical uncertainty and instability. The basic theory is that gold holds value across market cycles, as the supply is inherently limited and the asset is always in demand. However, it does not take much of a deep dive into gold’s historical prices to see that the metal is by no means immune to volatility or price decline, either rapid or extended. As many investors have been reminded in the past few weeks, precious metals are subject to the same market forces as every other asset. Its status as a safe haven does not mean it is immune to risk.

Government bonds are the traditional cornerstone of risk-averse investing. But these too are showing signs of strain. When equities struggle, bonds are expected to rise and their yields lower. Thus, it is often said that bonds and equities have an inverse correlation, one rising while the other falls and vice versa. However, this relationship is not perfect, as was seen in 2022 when, triggered by sharply rising interest rates, both stocks and bonds posted negative returns for the year. This inverse correlation can also be seen to break down often on shorter time frames, though most bond investors are looking for long-term returns. Just like with gold, even though they are a notoriously cautious investment, government bonds are not risk-free.

Defensive stocks, such as utilities, healthcare, and consumer staples, are also not immune to broader market turbulence. While they may outperform other market sectors during downturns, they can still deliver negative absolute returns. Furthermore, these stocks are not immune to macroeconomic uncertainty or geopolitical changes (think tariffs), and changes in these aspects can see sharp changes of fortune for these defensive stocks.

All of this taken together, the reality of investment is simple: no safe haven is perfectly stable, and all of them come with caveats. Their behaviour and performance still depend greatly on the market environment they exist in. A geopolitical crisis can see gold boom and currencies fall. Runaway inflation can see both bonds and equities suffer. There is no universal refuge that outperforms in every market environment.

But this does not mean that the concept of safe havens is broken or no longer works, but rather that they are not safe in isolation. An asset safer than equities can still lose money; lower risk does not mean risk-free. Treating any investment as a surefire bet will inevitably result in shock when conditions and correlations shift.
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Diversification remains the most robust defence in a changing economic landscape. By constructing a strategy of varying exposures in “safe havens” and elsewhere, we can create a portfolio equipped to deal with many market environments, without needing to predict the future course, such as in our All Weather portfolios. Diversification, of course, does not remove risk entirely, nor does it guarantee a positive result through every downturn. But it does reduce reliance on any singular asset, prediction, or decision.

In a global market environment where information flows rapidly and markets react swiftly to turns of fortune, the idea of a safe haven asset is becoming more and more out of reach. Increasingly, the concept of the safe haven exists not as an asset, but as a robust investment structure. Safety does not lie in having the exact remedy for any problem that arises, but rather in having a resilient portfolio with the ability to weather any storm. To see how our portfolios have handled recent market volatility. Take a 14 day free trial to see our live portfolio returns.