Safe-Haven Assets: What they Are and Why they Matter

Recent announcements by President Donald Trump regarding global trade tariffs have contributed to increased volatility in stock markets. Exports entering the American economy are expected to face tariffs of 10% or more, prompting measures by other nations and raising concerns about a potential global trade war, higher inflation, and a broader economic slowdown.

This is, of course, not good for stock markets, which are driven by economic growth. Perhaps understandably, investors trying to avoid the fallout have been selling their stock holdings en masse, resulting in massive market crashes around the world.

Global Stock Market Losses as of 7 April 2025 ^[1]:

• S&P 500: Fell nearly 6%
• Nasdaq: Dropped 5%
• FTSE 100: Plunged almost 5%, hitting a 5-year low

In Asia:

• Nikkei 225 (Japan): Down 7.8%
• Kospi (South Korea): Fell 5.6%
• ASX 200 (Australia): Lost 4.2%
• Hang Seng Index (Hong Kong): Dropped as much as 12.5% during trading

Hang Seng Index (Hong Kong): Dropped as much as 12.5% during trading, and to put things in perspective, the S&P 500 alone had lost as much as US$5 trillion in two days of sell-offs following tariff announcements [2]. While it’s difficult to know for sure where the capital has gone, analysts suggest that some of it may have been redirected into traditionally recognised safe-haven assets.

What are Safe-haven assets?

Safe-haven assets are assets that have historically held – or even increased – their value during market downturns. Investors flock to safe-haven assets to protect their portfolios against uncertainty and potentially limit their losses, especially when such assets become a priority amid economic stress. These assets come in different forms, ranging from stocks and ETFs to precious metals such as gold, stable currencies, and high-quality bonds. We’ll discuss more in detail later on.

Despite belonging to different asset classes, safe-haven assets share some common characteristics, such as:

• Being uncorrelated or negatively correlated with the broader economy, meaning their value tends to move independently or in the opposite direction of prevailing price trends.

• Having a limited supply makes them resistant to inflation or devaluation.

• Enjoying a consistent level of demand that endures throughout different economic conditions.

• Having permanence, which means they are not easily destroyed or replaced.

These traits help explain why many traders rely on safe-haven investments as part of a diversified portfolio.

Why trade safe-haven assets?

The main reason to trade safe-haven assets is to hedge your portfolio against market downturns.

This is possible because safe-haven assets tend to move independently of macroeconomic cycles, holding their value or even increasing it when other assets are at risk of falling. Some investors use safe-haven assets as part of a broader diversification strategy, given their tendency to behave differently from other assets during downturns.

Additionally, many safe-haven assets also offer dynamic price action of their own, which means traders can find potential trading opportunities. Such opportunities tend to be heightened when investors seeking safety start turning their attention to safe haven stocks; the increased demand introduces upwards pressure on prices.

When are Safe-haven assets popular?

The main reason to trade safe-haven assets is to hedge your portfolio against market downturns. This is possible because these assets tend to move independently of macroeconomic cycles, holding their value or even increasing it when other assets are at risk of falling. Some investors use safe-haven investments as part of a broader diversification strategy, given their tendency to behave differently from other assets during downturns.

Additionally, many safe-haven assets also offer dynamic price action of their own, which means traders can find potential trading opportunities. Such opportunities tend to be heightened when investors seeking safety turn their attention to safe-haven stocks; the increased demand puts pressure on prices.

When are Safe Haven Assets Popular?

Safe-haven assets tend to be most popular leading up to and during market corrections. Seeking to avoid the psychological pain of seeing their holdings fall in value, investors sell their falling holdings and shift toward traditionally safe assets that hold their value.
This transfer of capital to safe-haven assets can be exacerbated by dire-sounding news headlines about “crashes” and “plunges”, which whip up even more fear among traders, who are then tempted to get out of falling markets faster.

Popular Safe-haven assets to watch

Gold

One of the most popular safe-haven assets of all time is gold. Due to its scarcity, limited quantity, and other unique properties, the precious metal is widely regarded as a store of value.
Gold is popular not only among retail investors but also among institutional investors and central banks. In 2024, continued global uncertainty and stubbornly high inflation prompted central banks to extend their gold-buying spree, with purchases exceeding 1,000t for the third consecutive year. Meanwhile, annual investment in gold jumped 25% to 1,180t, a four-year high.^[3].

Some analysts, such as Goldman Sachs, have projected a potential 8% increase in gold prices in 2025 ^[4]. However, such forecasts are speculative, subject to significant change, and should not be relied upon as a basis for trading decisions.

Meanwhile, HSBC has revised its gold price outlook for 2025 and 2026 to USD 3,015 and USD 2,915 per ounce, respectively [5]. It is important to note that price forecasts are inherently uncertain and reflect the views of the respective institutions at a specific point in time.

Defensive stocks and ETFs

Recall that one of the key characteristics of safe-haven investments is that they continue to enjoy consistent demand even during a market downturn. Certain stocks have been found to demonstrate this characteristic. Known as defensive stocks, these stocks can provide a stable dividend yield, earnings, and cash flow, regardless of external events.

For defensive stocks, their share prices remain mostly stable despite high volatility or broader economic uncertainty. This is due to the inelasticity of demand for their products and services. Think about supermarkets, for instance; even if prices increase, demand is unlikely to change significantly, as consumers still need to keep buying groceries and other everyday essentials.

Some examples of defensive stocks are:

• Consumer staples, such as food and beverage brands, supermarkets, household, and personal care products.

• Healthcare, including pharmaceuticals, vaccine manufacturers, biotechnology and life sciences, and medical device manufacturers.

• Communication services, such as telephone and broadband providers, 5G and WiFi operators, and media and advertising companies.

• Utilities services, including power, gas, and water, independent power producers, etc.

By the same token, investors can use defensive ETFs to hedge against market risks. These are investment funds that track baskets of leading defensive stocks. Some examples of defensive ETFs include:

• iShares Edge MSCI Min Vol USA ETF (USMV). This fund focuses on equities with the lowest volatility, allowing investors to stay invested while reducing risk.

• Fidelity MSCI Utilities ETF (FUTY) has two of its largest holdings, NextEra Energy (NEE) and Duke Energy (DUK), which together provide electricity to millions of Americans.

• Vanguard Consumer Staples ETF (VDC). This ETF tracks popular defensive stocks, with an emphasis on consumer goods rather than utilities.

Note that these are commonly cited ETFs within the broader market, not recommendations to trade. Please conduct your own research or seek independent advice.

AAA-rated government bonds

Government bonds are loans that promise to pay a fixed return over their tenure. They are widely considered to be among the safest investments available, especially bonds issued by stable governments with healthy economies.

During a downturn, investors may turn to bonds for their low volatility and risk-free nature. This is because the principal sum invested will be repaid at maturity, making such investments as good as guaranteed.

Furthermore, bonds have an inverse relationship with interest rates, which can work in the investor’s favour. To stimulate a slowing economy, governments may reduce interest rates. Because bond interest is directly tied to interest rates, newly issued bonds offer a smaller yield than older bonds, making the latter more attractive.

Selected currencies

Currencies with strong liquidity, relatively low inflation, and stable political systems can serve as safe havens during economic downturns. Traditionally, a popular safe-haven asset is the US Dollar, due to its status as the world’s reserve currency and the dominance of the American economy. However, given the potential of a global trade war, the Dollar could see heightened volatility that would derail its safe-haven status, at least for the time being.

There are other safe-haven currencies investors can consider. One is the Swiss franc, which has enjoyed safe-haven status on account of Switzerland’s long-standing policy of political neutrality and fiscal prudence, enhanced by the Swiss National Bank’s commitment to maintaining currency stability.

Alternatively, the Japanese yen is also regarded as a safe-haven currency, due to Japan’s large economy and financial market liquidity. Despite its high public debt levels, the yen benefits from Japan’s current account surplus, which provides support during economic downturns.

Kindly note that the examples listed above are not investment recommendations. Past performance is not a reliable indicator of future results.

Tips for trading Safe-haven assets

Understand the market

Despite their status as safe havens, these assets can still experience volatility, sometimes moving in unexpected ways. Be sure to study and understand the market before trading your selected safe-haven asset.

Choose an appropriate entry point

One quirk about safe-haven assets is that if you wait too long, you may risk entering the market when prices are overvalued. This is because, as economic downturns worsen, the prices of safe-haven assets tend to rise as more investors buy them.

Thus, it is important to set realistic price targets and use stop-losses and take-profits at appropriate levels to help mitigate risk.

Take a long-term view

Don’t be tempted to go all in. Bear in mind that market corrections are par for the course, and over the long term, the market always goes up. This has been proven time and time again throughout history.
Remember that investors fleeing to safe-haven assets increases volatility in these markets, creating uncertainty for all. Following suit may not be the best move for everybody, and investors with long-term goals may find themselves better served sheltering in place, allowing the market to right itself in time.

Conclusion

For those interested in learning more about portfolio diversification, safe-haven assets are often studied due to their historical role during market downturns. Vantage offers a wide variety of CFDs, including forex pairs, stocks, ETFs, and bonds, for trading, as well as assets considered safe havens in light of current trade tariffs.
Gain exposure to price movements in safe haven assets without direct ownership through Vantage Contract-for-Difference (CFDs). CFDs are leveraged products that carry a high level of risk to your capital. Ensure you understand the risks involved and consider whether you can afford to take the high risk of losing your money. Vantage offers competitive spreads, low fees, and 24/5 customer support. Sign up for a live account now.

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