Why Safe Haven Assets Like Gold and Bonds Sold Off Amid Iran Conflict

In times of conflict, investors look for safe havens. But some of the usual ones aren't looking so safe at the moment. Here's why. Like oil tankers in the straight of Hormuz, investors seek out safe ports. Usually that's in the form of gold and US government bonds. But that wasn't really the case in the early aftermath of the US strikes on Iran. Through midday Thursday, gold was actually down more than 3% from the prior week. and US Treasury yields have risen each day since the conflict began. That means the bonds have sold off. Right now, those things don't actually seem any safer than anything else, like even US stocks. And that's because the US has another ongoing conflict, one running much longer than it's one with Iran, and that's the one with inflation. Crude oil and diesel fuel futures prices have surged. If sustained, those things could pretty easily start to translate into higher consumer prices as well. So, Wall Street believes that that might tide the Federal Reserve's hands later this year and that the central bank won't be able to cut interest rates like Wall Street thought it might have earlier this year. So, before the conflict began, Wall Street thought that there was maybe an 80% chance the Fed could do at least two quarter point cuts or more in 2026. That probability though based on futures prices tracked by CME Group has fallen to less than 50%. And what does that do? That makes bonds at today's yields a little bit less attractive. So they sell off. Gold, meanwhile, has already had a historic surge to record prices. That means that investors kind of might believe that the US dollar, somewhat tarnished, as it may have been recently, is actually a safer bet at today's levels than gold. It's also the case that higher interest rates make gold a little bit less attractive to hold than cash for some investors. Of course, the longer or wider this conflict becomes, the instinct to seek out the usual safe havens may take over. But what the market action tells us so far is that investors seem a bit more confident that the US can win its battle with Iran than it can with inflation.

WSJ's Telis Demos explains why safe-haven assets may not be so safe anymore and what that says about the U.S. battle with inflation. #Iran #Bonds #WSJ