All hedges work until they don’t and the Iran war has shown that many safe haven assets are subject to whims of chance, not logic.
While they reduce the frequency of losing, they don’t eliminate it — and it's the times you need them most that they often fail.
In recent weeks, US Treasuries and European government bonds have tanked alongside equities as stagnation fears swept through global economies and markets.
But investors learned long ago that haven status is never permanent or universal. Take US Treasuries, which behaved unusually during the early 2020 Covid-19 shock and after the March 2023 US banking crisis.
More recently, gold — a globally recognised store of value, which has no credit risk and supposedly performs when real rates fall or when trust in fiat currency wavers — has suffered heavily.
The precious metal plunged almost 10% in the week ending March 20, its biggest weekly loss since September 2011 and putting it on track for its worth month since October 2008.
It showed that when a safe haven asset becomes consensus, crowded positioning means it stops working as well.
So where to turn next?
Ask a salesperson what to do and they may encourage you to buy put options, or tout the old adage to ‘buy more, improve your average’.
Some have even suggested that — whisper it — oil stocks could be the answer as a hedge against the current geopolitical crisis.
Yet while the instinct to act during periods of volatility is strong, the best move could be to sit tight and ride out the latest gyrations.
Distinguishing patience from paralysis is never easy. Yet it remains the case that many highly rated sovereign and SSA bonds have depth and liquidity.
Remember, US president Donald Trump is set to visit China in May and faces midterms in November — tumbling equities and rising yields make for both an uncomfortable macro and political environment. For presidents and investors, safe havens aren't what they used to be.