Positioning for the Next Market Shock: What Safe Havens Still Deserve the Name?

In an increasingly unstable global financial environment, investors are rightly asking: where can capital truly be safe? For decades, conventional safe havens—U.S. Treasurys, the U.S. dollar, and gold—have acted as portfolio insurance in times of equity market distress. But the post-pandemic world, with its inflation volatility, geopolitical fractures, and extreme fiscal policy experimentation, has changed the playbook.

Below, I break down how each of these so-called "safe" assets are evolving—and what I believe is the more prudent strategic posture for investors going forward.

Treasurys: From “Risk-Off” Hero to Inflation Casualty

In the past, Treasurys were a near-perfect hedge: when risk assets sold off, Treasury prices climbed, aided by falling yields and flight-to-safety buying. From the late 1990s through 2019, the U.S. bond market had its cake and ate it—delivering both real returns and diversification.

But inflation has disrupted that dynamic. Today, a 10-year Treasury yield of ~4.3% (as of March 2025) may look attractive in nominal terms, but it's far from "risk-free" in real terms if inflation persists above 3%. Worse, when inflation surprises to the upside—as it did throughout 2022–23—both bonds and stocks can fall simultaneously. That rare, painful correlation breakdown was a warning shot for anyone assuming Treasurys still behave as they did pre-COVID.

My view: Treasurys still have a role as short-term crisis buffers (e.g. in a deflationary panic), but they’re no longer reliable as long-term portfolio stabilisers. I currently favour shorter-duration government debt and inflation-linked bonds (TIPS or gilts) to reduce duration risk while retaining flexibility.

The U.S. Dollar: Still Dominant—But Vulnerable

The dollar’s “smile” theory—rising in both boom times (capital chasing returns) and bust times (flight to safety)—has held for years. But that narrative is showing cracks.

At the start of 2025, the U.S. dollar hit its strongest level in real terms since the 1985 Plaza Accord, largely driven by foreign capital inflows into U.S. Big Tech and AI stocks. The catch? That positioning is now extremely crowded. Should the U.S. economy stumble or rates fall more aggressively than expected, a rush to the exit could drive an unwelcome dollar slide.

What complicates matters further is political risk. With a potential Trump presidency on the horizon, "America First" rhetoric and hints at a new “Mar-a-Lago Accord” aimed at discouraging dollar hoarding could damage the greenback's safe-haven reputation. The implicit threat of financial weaponisation—already seen with Russian reserves in 2022—may accelerate central bank diversification away from the dollar.

My view: The dollar remains structurally strong in the short term, but overly reliant on external capital. I’d underweight USD in long-term strategic allocations, and consider gaining currency diversification through selective EM or G10 FX exposure.

Gold: The Inflation Hedge Back in Fashion

Gold has exploded higher—up over 50% in the past 12 months, recently breaching $3,100/oz, an all-time high. Much of this rally is driven by central bank buying (especially China), geopolitical tension, and doubts about the U.S.’s fiscal sustainability. It is also a hedge against the perceived politicisation of the dollar.

Gold, unlike fiat or debt-based assets, is no one’s liability. That makes it appealing in a world of weaponised currencies and rising sovereign risk. But here’s the rub: gold tends to perform poorly in the acute phase of a crisis, when investors liquidate to cover margin calls—as seen during the 2008 GFC and March 2020.

My view: Gold is the most compelling long-term hedge among traditional safe assets today, especially if inflation expectations remain unstable. However, I treat it as volatility insurance rather than a yield generator. A 5–10% portfolio allocation (held via ETFs or physical bullion) strikes the right balance.

Cash: Yielding Again, But Timing Dependent

With UK and U.S. base rates still above 4.5%, cash is once again offering real returns for the first time in over a decade. But cash is not a hedge—it preserves nominal value, not purchasing power, and delivers no upside in crisis conditions.

My view: Maintain a slightly elevated cash position to exploit future dislocations. But be wary of over-allocation—it’s a timing instrument, not a long-term solution.

Final Thoughts: Rethinking Portfolio Insurance

In this new macro regime, knowing who else owns the so-called “safe” assets is as important as knowing why you own them. When positioning gets crowded, even high-quality assets can fall victim to forced selling.

My approach:

• Moderate gold allocation as an inflation and tail-risk hedge.

• Hold shorter-duration government bonds and cash for flexibility.

• Reduce reliance on the U.S. dollar and diversify currency exposure.

• Use market pullbacks to selectively build positions in real assets and infrastructure, which offer long-term inflation protection.

The era of “free hedging” via bonds or the dollar is over. We’re in a new environment—one where safety comes at a cost, and where portfolio protection requires active management, not passive assumptions.