T. Rowe Price: Safe havens in 2025? It's a complicated relationship

Key Insights

• “Safe-haven” assets are evolving amid changing market dynamics, necessitating a rethink of the traditional relationships between asset classes.
• As the other side of the market regime shift comes into view, alpha opportunities could broaden across currencies, asset classes, and sectors.
• Investors should proactively manage multiple directions of risk while preserving liquidity to capitalize on emerging opportunities.

During times of market turmoil, investors regularly seek comfort and stability in “safe-haven” assets like gold, U.S. Treasuries, and the dollar. But in 2025, the relationship is complicated. One moment safe havens are the ultimate source of security; the next, they’re betraying expectations.

The U.S. dollar has declined. Treasury yields have fluctuated widely and remain elevated. And gold has surged to record levels despite higher bond yields, defying typical correlations.

“Puzzled investors are wondering whether this is just a rough patch or something more.”

The traditional links between asset classes are weakening amid geopolitical realignments, fiscal and monetary policy actions, inflationary pressures, and a changing macroeconomic landscape. Puzzled investors are wondering whether this is just a rough patch or something more.

Rather than trying to forecast how the behavior of safe havens will evolve, investors should step back and reconsider long-held assumptions about these assets. With a highly uncertain road ahead, diversification, risk management, and the ability to recognize genuine turning points in markets are as crucial as ever.

Putting things in perspective

While markets reacted strongly to tariff rollouts, selling activity in April remained relatively orderly. The S&P 500 Index ultimately finished the month little changed, and the CBOE Volatility Index (VIX)—a measure of expected volatility in U.S. equities—stabilized relatively quickly compared with other periods of extreme volatility (Figure 1).

Cooling-off period

(Fig. 1) Notable spikes in the VIX and days until significant volatility subsided

Source: T. Rowe Price analysis of Chicago Board of Options Exchange (CBOE) data.
©2024 Cboe Exchange, Inc. All rights reserved.
Note: VIX levels above 30 are generally considered to represent heightened volatility.
¹ Peak levels amid the market events shown on the chart (from left to right) occurred on October 24, 2008, March 18, 2020, August 8, 2011, and April 7, 2025, and include intraday readings.
² Based on close-of-day levels.

Lingering uncertainty around U.S. policy has weighed heavily on both consumer and corporate confidence, but parts of the global economy appear to be holding up. Based on April data, U.S. job growth has remained solid, global Purchasing Managers’ Indices have softened but not yet posted meaningful declines, and the tightening of financial conditions has partially unwound.

Still, the risks of accelerating inflation and recession have increased, and the range of economic outcomes remains wide. What’s more, tariffs and other policy shifts are reshaping the outlook for investing in both the U.S. economy and dollar assets. After a decadelong love affair with U.S. markets, simultaneous sell-offs in U.S. equities, bonds, and the dollar offer a rare signal of declining confidence in American leadership.

From a portfolio construction standpoint, investors should consider better aligning their positioning by preparing for a range of scenarios and managing multiple directions of risk. However, the changing behaviors of safe havens necessitate a rethink of risk-hedging opportunities.

Trust factor: safe havens behaving badly

Long duration Treasuries, normally a go-to choice during economic turmoil, have been especially volatile. Supply/demand dynamics offer some explanation: The federal government has issued a whopping USD 2.3 trillion in new debt annually since 2020, while regulations have constrained bond dealers’ balance sheets. This has worsened market liquidity and added to concerns over debt sustainability.

A protectionist impulse in the U.S. government has further dulled the appeal of Treasuries, with trade and immigration policies increasing the risk of stagflation. Meanwhile, political instability, including on-again, off-again threats to the Federal Reserve’s independence, is raising questions about America’s institutions. These structural changes suggest that while Treasuries still offer risk-hedging potential, they may not be as universally reliable as they were in the past.

Commitment issues: unshakable dollar being put to the test

For now, there are few challengers to the U.S. dollar as the world’s reserve currency. However, erratic policies, trade tensions, and fiscal issues in Washington have caused some investors to question the long-term haven status of the dollar, one of the few assets that was consistently defensive through the post‑GFC and post-pandemic periods, including 2022.

The waning perception of U.S. exceptionalism has led some investors to diversify into other currencies like the Swiss franc, the euro, and the Japanese yen, which are increasingly seen as safer and more reliable alternatives.

A rocky relationship: managing multiple risks

Further complicating the use of traditional portfolio stabilizers, investors now need to manage multiple directions of risk from high inflation, stagflation, low growth (or recession), and changing market leadership.

Short-term U.S. Treasuries (currency hedged) are still the best diversifier for growth risks but are not as effective in an inflationary shock. High-quality German bunds have been less volatile than their U.S. counterparts and, thanks in part to relatively stable governance, are gaining traction as a viable haven alternative.

Risk-hedging opportunities

(Fig. 2) Potential benefits and considerations by asset class

For informational purposes only. Not investment advice or a recommendation to buy or sell any security.

Inflation looks set to be a clingy partner and could increase in the months ahead. Short-term inflation protected Treasuries should provide a cost-effective hedge, as should real assets and companies with pricing power.

What other assets might cautious investors want to consider?

Cash remains a defensive asset class and is far more attractive today than it was in the zero interest rate environment of several years ago. Yet, while it’s important to maintain dry powder to try to take advantage of opportunities that will emerge from market shifts, investors should remain mindful of the opportunity cost associated with holding cash. Staying invested has paid off over the long term; waiting for the perfect market entry is nearly impossible and can mean forfeiting valuable gains.

Among equities, market broadening has been a core theme of 2025 (Figure 3) and appears likely to continue in the near term, underscoring the importance of diversification across investment styles, market capitalizations, and geographies.

Value and international outperformance

(Fig. 3) Total returns in U.S. dollar terms over the year-to-date period ended April 30, 2025

Past performance is not a guarantee or a reliable indicator of future results.
Source: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved.

In a traditional growth shock, defensive sectors like consumer staples, health care, and utilities have tended to outperform the broader market. Health care offers promising opportunities due to secular tailwinds from an aging population and radical innovations. However, regulatory issues and the risk of tariffs in areas like pharmaceuticals mean that strong fundamental analysis of individual companies is essential to navigating the sector.

Elsewhere, alternative investments such as cryptocurrencies, private assets, art, and fine wine are gaining traction as investors seek diversification. While the objective of some may be to provide attractive risk-adjusted returns for long-term investors, these assets can be speculative and/or illiquid.

Opportunity on the other side

Although recent headlines suggest that global trade tensions are easing, and market sentiment has responded positively, there is still no clear evidence of a permanent resolution. Additionally, the timing and scope of potential monetary and fiscal stimulus in the U.S., such as Federal Reserve rate cuts and an extension of the 2017 Tax Cuts and Jobs Act, remain uncertain.

But the macro instability will eventually pass, and successful investors will be the ones able to look past rocky moments and navigate genuine turning points along the way. As the other side of the market regime shift comes into view, alpha opportunities could broaden across currencies, asset classes, and sectors due to greater dispersion and idiosyncratic risks.

Emerging markets (EM) are one area that could be particularly ripe for active investors.

EM currencies are already considered ultra-cheap versus the greenback, and a structural downtrend in the dollar could give EM central banks more latitude to cut rates, providing an additional tailwind. However, any reorientation of global supply chains in response to tariffs will produce winners and losers in EM equities and bonds. Moreover, the White House has indicated that it will step up scrutiny over foreign exchange rates, potentially adding currency appreciation to its arsenal of tariff measures. These variables make fundamental research and a risk-aware approach paramount.

Avoiding heartbreak:

The shifts in safe havens necessitate a reevaluation of asset class relationships. In this increasingly complicated environment, investors who are risk-aware, focused on their long-term goals, and understand market volatility as opportunity should be best equipped for the journey ahead.