In 2025, precious metals emerged as the clear winners while nearly all other traditional "safe-haven" investments underperformed. Against a backdrop of market turbulence, geopolitical conflicts, and AI bubble concerns, this outcome proved particularly striking.
A combination of factors shaped this year's market dynamics: robust global economic growth, politicians pushing accommodative monetary policies, receding recession fears, AI-driven market euphoria, and escalating geopolitical tensions.
Commodities suffered broadly due to worsening crude oversupply. Despite multiple Middle East flare-ups and fears of oil prices surging to $100/barrel, crude prices fell 20% year-on-year, now trading at nearly half that level.
For investors hedging against global conflicts, the winning play wasn't utilities or consumer staples—but defense stocks themselves. U.S. aerospace and defense shares gained 36%, while European counterparts soared 55% as Germany and continental Europe accelerated military rearmament.
Bonds and Defensive Assets Lag Most traditional hedges and safe assets became portfolio drags rather than protections. Even "digital gold" (cryptocurrencies) closed the year in negative territory.
Bond markets disappointed too. Dollar-denominated global "risk-free" government bond indices fell about 1%, with total returns barely exceeding 6%. Broader benchmarks like the Bloomberg Global Aggregate Index fared marginally better, with 1% price gains and ~7% total returns—less than half the MSCI All-Country World Index's rally toward its best annual performance since 2019's pre-pandemic levels.
Defensive equity strategies also missed the mark. The S&P 500 (SPX) rose 15%, fueled by megacap tech and AI themes, with U.S. economic resilience and H2 rate cuts lifting most Wall Street stocks. S&P 500 "growth" stocks (+20%) doubled "value" counterparts' gains, while the index's total return outpaced its equal-weight version by 5 percentage points. Though utilities, healthcare, and financials all gained over 10%, they trailed major indices. Consumer staples eked out just ~2%, ranking worst. Even Dow Jones Industrial Average (DJI) blue chips underperformed both the S&P 500 and Nasdaq Composite (IXIC).
Currency Havens Stumble The yen and Swiss franc—typical haven currencies—delivered mixed results. Early dollar weakness initially boosted both, but the yen erased all gains as Japan's bond market turmoil under new Prime Minister Sanae Takaichi offset further BOJ rate hikes. The yen fell ~4% on a trade-weighted basis. The franc retained its gains, joining gold and silver among 2025's few successful havens.
Investors treating the dollar as a geopolitical hedge were disappointed—the dollar index fell 12% during the year's most volatile months, remaining weak through crises in the Middle East, Eastern Europe, and even the Caribbean.
Volatility Plays Fizzle Options-based strategies betting on market turbulence also misfired. The VIX (measuring S&P 500 volatility) closed 2 points below its January level despite spring turbulence. The MOVE bond volatility index ended below two-thirds of its January value—less than half its April peak. Major FX volatility metrics similarly declined.
In short, excessive caution proved unprofitable in 2025. The pressing question now: Should investors double down or cut losses in 2026?
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