Gold Becomes the "Top Choice"! This Time, in the Israel-Iran Conflict, the Market's Safe-Haven Logic Has Changed...

As international gold prices hit a record high close last Friday, market participants seem to have drawn a clear line in their choices among safe-haven assets amid the ongoing Israel-Iran conflict: gold is "shining brightly," while the US dollar and US Treasuries are "losing their luster"...

Market data shows that Comex gold futures closed at $3,452 per ounce last Friday. Although this did not surpass the intraday record high of $3,509 set in April, it still marked a new record closing price.

George Catrambone, Head of Americas Fixed Income at asset management firm DWS, said in an interview, "Gold is currently seen as the new-type risk-free asset in people's minds." He added that 10-year and 30-year US Treasuries are clearly no longer viewed as safe-haven instruments.

Catrambone pointed out, "This is a lesson learned since the extreme market turmoil two months ago, when US President Trump suddenly announced on April 2 the implementation of 'Liberation Day' tariffs that were far more severe than expected, shocking the market."

He noted, "Unless proven otherwise, gold has become the new alternative risk-free asset."

For a long time, gold, the US dollar, and US Treasuries have been the safe-haven assets that investors rushed to buy during periods of heightened geopolitical tensions or market stress. However, this year, there has been a clear divergence in preferences among these three assets.

Since the tariff dispute in April, concerns about a persistent "sell the US" trade have loomed over global markets. Although the ICE US dollar index rose slightly by 0.3% last Friday, it is still down 9.5% year-to-date compared to the same period last year. Many industry insiders said that the US dollar's mild appreciation against major non-US currencies after Israel's attack on Iran further reinforced signs that the US dollar's status as a global safe-haven currency is weakening.

"Tensions in the Middle East are a risk that bearish dollar views need to contend with, rather than a game-changer," JPMorgan strategists Meera Chandan and Arindam Sandilya said in a report to clients last Friday. "We currently do not expect the supportive impact on the dollar at this stage to be lasting."

Karl Schamotta, Chief Market Strategist at cross-border payment company Corpay, said that the prevailing risk-averse tone in the market reminds investors that the US dollar's decline this year reflects more long-term growth concerns—rather than any changes in short-term demand for the liquidity of US assets.

In fact, before the latest Israel-Iran conflict, Wall Street investment banks had already been strengthening their forecasts for further US dollar weakness. Paul Tudor Jones, founder of macro hedge fund Tudor Investment, said that the US dollar could decline by 10% in a year as he expects short-term interest rates to be cut "significantly" in the coming year.

In contrast to the US dollar's meager gains, US Treasury prices even fell on Friday, a trading day marked by heightened risk aversion. The yield on the benchmark 10-year US Treasury note rose 6.7 basis points to 4.424% at the end of trading on Friday, as concerns about rising inflation outweighed safe-haven buying demand.

Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income, said that there was no typical safe-haven buying of US sovereign debt, and instead yields rose.

Alex Cohen and Mark Cabana, analysts at BofA Securities, pointed out that the situation behind this anomaly indicates that inflation concerns and fiscal risks are eroding investors' trust in traditional safe-haven assets. US Treasuries no longer possess the traditional "safe-haven" attribute amid the current market's risk aversion.