The risk of war in Iran is rising, reshaping the global landscape of safe-haven assets. Large institutional investors are placing gold and the US dollar above traditional safe-haven assets like government bonds, marking a significant reassessment of the market's definition of &#34;safe assets.&#34;
On Monday, the international spot gold price surged by 2.6% to over $5,400 per ounce, nearing historical highs, triggered by new concerns over an energy crisis following a drone attack on Qatari gas facilities.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/2dd33c8a-c9a7-4b94-b19d-a4aafdbc1424.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/2dd33c8a-c9a7-4b94-b19d-a4aafdbc1424.png"/>
Meanwhile, European gas prices skyrocketed by over 30% in a single day, inflation expectations surged sharply, pushing global bond yields higher—Germany's two-year government bond yield rose by 8 basis points to 2.09%, and the traditional safe-haven function of bonds has once again failed.
On March 2, Roula Khalaf, editor of the Financial Times, stated in an article that as Iran expands its attack targets from Qatar to Saudi energy infrastructure, market concerns about the persistence of conflict continue to rise, and the logic of choosing safe-haven assets is being rewritten. The divergent market trends pose a direct impact on investors' asset allocation. Several large asset management firms have begun to reduce their equity exposure, some shifting to cash, and hedging downside risks by buying S&amp;P 500 put options.
<h2>Bonds Fail, Gold Takes Over</h2>
The performance of government bonds in this round of risk events has left the market deeply disappointed.
Seb Barker, chief market strategist at hedge fund Marshall Wace, stated, &#34;We are seeing once again that bonds have failed to provide protection in risk-averse events, while gold has.&#34; The situation in the Gulf has &#34;strengthened&#34; the rationale for increasing allocations to so-called &#34;non-bond safe-haven assets.&#34;
Analysts at BlackRock's investment research institute also believe that the market's reaction indicates that &#34;given the stagflation risks that may arise from this escalation of conflict in the Middle East, long-term government bonds are no longer a reliable ballast for investment portfolios.&#34;
Robert Tipp, global bond chief at PGIM, attributed gold's strength to a &#34;global uncertainty premium&#34;—investors are questioning, &#34;What are safe-haven assets in the current environment? What are neutral assets?&#34;
Gold suffered significant losses during the sharp correction in January, but this round of increases has nearly erased those declines. Imaru Casanova, precious metals portfolio manager at precious metals asset management firm VanEck, stated, &#34;Gold has repeatedly defended its status as the ultimate safe-haven asset during times of high uncertainty and high risk.&#34;
Analysts at Crédit Agricole estimate that if the conflict in Iran continues, gold prices could rise by as much as 15%, with the increase likely concentrated in the initial weeks of the conflict.
<h2>Inflation Expectations Repriced, Rate Cut Path Narrows</h2>
The inflation shock brought about by soaring energy prices is forcing the market to significantly compress expectations for interest rate cuts by major central banks, leading to a broad rise in bond yields
In the UK, swap contracts indicate that the probability of the Bank of England completing two 25 basis point rate cuts within the year has fallen below 100%, with the market currently implying only about a 60% chance of a second rate cut. The yield on the two-year UK government bonds, which are sensitive to interest rate expectations, rose by 11 basis points to 3.64%.
The expectations for rate cuts in the Eurozone have contracted even more significantly. The probability of another 25 basis point cut this year plummeted from about 55% last week to around 15%.
Nicolas Trindade, a senior portfolio manager at BNP Paribas Asset Management, warned that &#34;the longer the conflict lasts, the more central banks will need to incorporate these inflationary pressures into their forecasts, thereby creating upward pressure on interest rates.&#34;
<h2>Institutional Rebalancing: Reducing Stocks, Holding Cash, Buying Protection</h2>
Meanwhile, in the face of high uncertainty in the situation, large asset management institutions have begun to actively adjust their holdings.
French asset management company Carmignac is reducing its equity exposure, including in the Japanese market, and is considering cutting back on previously surging oil-related stocks. Kevin Thozet, a member of the company's investment committee, stated,
<blockquote>
&#34;We are reducing risk exposure because the range of possible outcomes is quite broad.&#34;
</blockquote>
He added that while Carmignac is buying put options on the S&amp;P 500, it is also keeping some of the funds withdrawn from stocks in cash to hedge against the risks posed by soaring inflation on government bonds.
Beata Manthey, global equity strategist at Citigroup, stated that the bank has downgraded its rating on Japanese stocks from overweight to underweight, citing the Japanese market's significant exposure to rising oil prices; at the same time, Citigroup upgraded its rating on UK stocks due to the high weight of defense and energy sectors in the UK market.
Manthey also cautioned, &#34;If the situation worsens further, investors will reduce positions where they can, leading to a more coordinated sell-off. Currently, it remains relatively selective.&#34;
<h2>Strait of Hormuz: The Unresolved Major Variable</h2>
Among all risk factors, the core issue that large investors are most concerned about is: how long can high oil and gas prices persist, and to what extent will passage through the Strait of Hormuz be obstructed? This vital waterway is crucial for global commodity shipping trade.
A senior trader at a major Wall Street bank candidly stated, &#34;Wars always last longer than we expect,&#34; and listed the dollar and gold as the two main safe-haven trades currently.
On Monday, the dollar rose 0.9% against a basket of currencies, continuing its traditional safe-haven role in non-U.S. domestic pressure events.
Analysts pointed out that as Iran expands its attack range from Qatar to Saudi Arabian energy infrastructure, the market's pricing for a prolonged conflict is gradually deepening. In this context, the combination of gold and the dollar has become the clearest safe-haven consensus among institutional investors in the current market environment

RING

SGOL

GDXW

SGDM

GOAU

GLTR

The risk of war in Iran has triggered concerns over an energy crisis and stagflation, leading to rising inflation expectations and higher bond yields, causing traditional safe-haven functions to fail. Institutional investors are redefining safe assets, with gold and the US dollar as their preferred hedges. At the same time, asset management firms are hedging against highly uncertain market risks by reducing equity exposure, increasing cash holdings, and buying put options

How to hedge against the risk of war in Iran? Market vote: gold, not bonds