Safe havens face fresh test

INVESTORS are likely to remain on the lookout for safe-haven assets as artificial intelligence (AI) jitters unsettle technology shares, the Iran war keeps energy prices elevated, and concerns over mounting government debt continue to weigh on global markets.

But as markets head towards the final stretch of 2026, traditional havens such as gold, government bonds and major currencies are proving less predictable, with investors having to weigh geopolitical risks against inflation, interest rates and fiscal pressures.

According to a recent Reuters report, while demand for protection against market volatility remains strong, traditional safe havens have not always performed as expected.

Gold, for instance, sold off after the Iran war began as investors liquidated profitable holdings to cover losses elsewhere, while government bonds experienced sharp swings despite their longstanding reputation for safety.

Greenback, Swiss franc are benefactors

The US dollar has been one of the more notable beneficiaries of the changing environment.

Breaking with last year’s trend of selling US assets, the greenback has gained about 4% since late February, when the Iran war began, reinforcing its appeal during periods of global stress.

A strong US economy, relatively high interest rates and the country’s position as an energy exporter have helped support the currency as oil and other energy prices rise.

Societe Generale chief foreign-exchange (forex) strategist Kit Juckes said the greenback could be approaching the latter stages of its bull market, although the immediate environment made it difficult to justify a sustained bet against the currency.

“It hasn’t got that much further to go,” he told Reuters, while noting that the “big global story is that the dollar is a petrocurrency and we’re in the middle of an energy crisis”.

However, the US dollar’s longer-term safe-haven credentials remain under scrutiny.

The US national debt has exceeded US$40 trillion, while policy uncertainty continues to trouble investors.

The currency is also exposed to a potential reversal in technology shares, given that optimism over the AI investment boom has helped attract record capital inflows into US equities.

If technology stocks face a deeper correction, investors could reassess their exposure to US assets, complicating the US dollar’s outlook even as geopolitical tensions continue to support demand for liquidity.

In Europe, the Swiss franc has emerged as another beneficiary of market uncertainty.

The currency has gained more than 2% against the euro so far this month, putting it on track for its biggest monthly advance since late 2023, according to Reuters.

The move reflects concerns about France’s public finances, alongside election uncertainty in France and Spain.

“Concerns about France’s public finances and election uncertainty in France and Spain have supported the franc,” ABN Amro senior forex and oil strategist Georgette Boele told Reuters.

She added that investors are becoming less willing to use the franc to finance carry trades, in which they borrow in a low-interest-rate currency to invest in higher-yielding assets elsewhere.

Switzerland’s interest rate of 0% has traditionally made the franc attractive for such strategies, but investors may be less inclined to take positions against a currency with established safe-haven qualities.

The franc could also benefit if concerns over AI valuations trigger further selling in global equity markets.

Complicated bonds

Government bonds, meanwhile, are facing a more complicated outlook as rising borrowing needs and fiscal concerns challenge their traditional role as portfolio protection, according to Reuters.

Borrowing costs in major economies, from the United States to Japan, have recently reached multi-decade highs. However, the latest technology-driven selloff has renewed some demand for bonds, highlighting how investors may still turn to selected government debt when risk appetite deteriorates.

German government bonds, known as Bunds, have stood out. Earlier this month, when US and French 10-year government bond yields reached 24-year peaks, German yields fell as Bund prices rose.

Since bond prices move inversely to yields, the development suggested that investors were seeking the relative safety of Germany’s highly rated debt.

Bundesbank president Joachim Nagel said Germany would remain an anchor of stability in Europe amid the bond-market turmoil and is “getting fit” after years of stagnation, Reuters reported.

“Everyone worries about contagion in Europe and whether the Bund just gets dragged along with (French) OATs, (Italian) BTPs, so it’s good that the Bund has acted as that European risk-off instrument,” Johnathan Owen, a portfolio manager at TwentyFour Asset Management, told the newswire.

The distinction between short- and long-dated government bonds is also becoming more important.

Longer-dated securities are more exposed to shifts in expectations for government borrowing, inflation and interest rates, making them less reliable as defensive holdings when fiscal concerns intensify.

Shorter-dated bonds may offer a degree of shelter because their prices are generally less sensitive to long-term debt worries and changes in yields.

“We really like short-dated bonds,” Wren Sterling chief market strategist Rory McPherson, told Reuters.

“Because of all the concerns over debts and deficits, we haven’t been buying longer-dated bonds,” he added.

Support for gold

Gold, another traditional store of value, has experienced a similarly uneven journey.

After climbing to a record US$5,595 per troy ounce in January, the precious metal retreated following the start of the Iran war as investors sold holdings to offset losses in other parts of their portfolios.

Prices subsequently recovered in August as inflation concerns resurfaced and investors questioned whether the US Federal Reserve (Fed) was doing enough to contain price pressures.

Gold is currently trading at around US$4,150-US$4,200 an ounce, with central bank purchases and safe-haven demand helping to support prices above US$4,000, Reuters reported.

High interest rates remain a constraint because gold does not pay interest, making it less attractive when yields on competing assets are elevated.

However, geopolitical tensions and concerns about US government finances could provide further support over the longer term.

“In the longer term, gold should again benefit from continued strong central-bank buying and renewed concerns over US debt and its rising interest burden,” Julius Baer analyst Carsten Menke told Reuters.

JP Morgan head of base and precious metals strategy Gregory Shearer also maintains a constructive long-term outlook for gold, pointing to continued central bank buying and the broader trend of de-dollarisation.

“We ultimately see further recovery in prices coming in 2027 as structural central bank and physical buying eventually re-strengthens.

“However, the intensity of the rebound has been reined in as gold needs a more material dovish pivot from the Fed for demand to once again fire on all cylinders – a needed mechanism to re-accelerate momentum in its longer-term uptrend,” he said in a note to clients.

His outlook suggests that the timing and strength of gold’s next advance will depend partly on monetary policy, even as structural demand continues to underpin the precious metal.

A more substantial shift towards lower US interest rates would make non-yielding gold more attractive, while sustained central bank purchases and diversification away from the US dollar could provide additional support into 2027.