Gold has surged to record highs fueled by rising geopolitical tensions, such as Iran-Israel tensions, and a sharp loss of confidence in traditional U.S. safe havens. Historically, investors turned to U.S. Treasuries and the dollar during times of crisis. But this time, these assets are also under pressure.

A rare trifecta of weakness — declines in U.S. stocks, bonds and the dollar — signaled a broader shift in sentiment in April amid Trump tariff tensions. Policy uncertainty, inflation risks, and concerns about U.S. leadership have pushed investors to rethink their strategies.

The gold bullion ETF SPDR Gold Trust (GLD Quick QuoteGLD - Free Report) has gained 27% so far this year (as of June 16, 2025).  The U.S. dollar ETF Invesco DB US Dollar Index Bullish Fund (UUP Quick QuoteUUP - Free Report) has retreated 8.3% in the year-to-date frame (as of June 16, 2025). iShares 20+ Year Treasury Bond ETF (TLT Quick QuoteTLT - Free Report) has lost about 2.4% so far this year.

Policy Uncertainty and a Dollar Reset

A sharp rise in U.S. policy uncertainty has unsettled investors. Meanwhile, the U.S. dollar, long considered overvalued, is starting to unwind. Forecasts point to a potential 10-20% decline against major currencies like the euro and yen over the medium term. The narrowing yield gap between the United States and other major economies is further weakening the dollar’s appeal.

Why U.S. Treasuries Aren’t a Good Option Right Now

Note that Moody's downgraded the U.S. sovereign credit rating by one notch in May 2025, citing concerns over the country’s ballooning $36 trillion debt burden. This move, following similar actions by Fitch in 2023 and S&P in 2011, raised alarm among investors about the nation's long-term fiscal sustainability.

The downgrade has veered the market’s focus toward Washington's fiscal policy debates. This is especially true since a major tax cut bill backed by President Donald Trump may raise the fiscal deficit (read: ETFs to Play Amid Long-Term Yields' Best Week Since 1982).

However, many analysts believe that the debt downgrade could eventually lead to higher borrowing costs for both public and private entities. The value of U.S. treasuries is likely to decline as the bond prices and yields are inversely related.

Gold: The Best "Risk-Free" Asset?

With both Treasuries and the dollar underperforming, investors are turning to gold as a more reliable store of value. Unlike financial instruments tied to government or central bank actions, gold holds intrinsic value and is immune to inflation or political instability.

“Gold’s key advantage is that it is no one else’s liability,” said Nikos Kavalis, managing director at Metals Focus. “When an investor owns Treasurys, other sovereign bonds and even currencies, they are ultimately buying into the respective economy,” he said, as quoted on CNBC.

Moreover, the U.S. inflation reports are still cooler than expected, despite the tariff threat. The data points may lead the Fed to remain more dovish than expected. If the interest rates remain lower, non-yielding assets like gold should outperform.

Japan's Low Rates Discourage Yen Investment

Japan has lagged behind other central banks in raising interest rates, which has discouraged investors from moving into the yen due to the unfavorable interest rate differential. Note that the Bank of Japan (BOJ) maintained its policy rate at 0.5% for the second consecutive meeting in May. Therefore, the yen, traditionally viewed as a safe haven, has been losing its appeal.

Safe Haven Appeal of Swiss Franc Faces Pressure

The Swiss National Bank (SNB) may be attempting to curb safe-haven inflows, which could reduce the franc’s appeal. In March, the SNB set its policy rate at 0.25%. Swiss consumer prices declined in May—the first drop in over four years—leading some analysts to speculate that lower interest rates could be on the horizon. Hence, the Swiss franc—another safe haven—may not offer much in terms of returns.

Bottom Line

The latest pivot toward gold reflects a deeper shift. For decades, U.S. assets were favored globally due to superior growth, strong yields and the dominance of the dollar. But as these pillars are weakening, investors are diversifying more intentionally, adding exposure to international markets and alternatives like gold.