Why gold, bonds and the dollar are underwhelming investors | The Economist

TL;DR

Gold, bonds, and the dollar are failing as safe havens because pre-existing price inflation, dollar weakness, and inflation fears have stripped each of their protective qualities.

Key Points

• 1.Stock markets are at all-time highs despite the Iran war oil shock. Investors are relying on 'muscle memory' from Covid, Ukraine, and the 2023 banking crisis — where selling during panic meant missing rapid recoveries — but analysts warn this crisis involves permanent oil output destruction.
• 2.Gold has lost its safe-haven character after five years of surging prices. Central banks and retail investors piled in post-pandemic, pushing gold so high that it fell alongside stocks at the war's onset, behaving more like a speculative risky asset than a hedge.
• 3.The dollar failed its safe-haven test during Trump's Liberation Day tariffs. Rather than appreciating during the resulting stock and bond panic, the dollar fell alongside everything else; since then it has stabilised but offers only flat, underwhelming gains during crisis moments.
• 4.Government bonds are undermined by inflation and unsustainable fiscal deficits. An oil-driven inflation spike erodes bond values, and rich-world governments already borrowing vast sums face mounting concerns that their fiscal trajectories make sovereign bonds structurally less safe.
• 5.Investors are defaulting to stocks not out of optimism but lack of alternatives. The logic is that corporate profits may keep pace with inflation, but buying shares simply because other havens are gone — rather than on strong profit growth expectations — risks inflating a bubble.