By Patrick O'Donnell

In times of trouble, investors usually flock to so-called traditional haven investments but the Iran war has put a question mark next to several of these former flights to safety — with only one old-school bolt-hole standing firm.

Gold, treasuries, the dollar, and utilities have been the market's go-to ports in a storm with bitcoin a more recent addition.

Since the U.S. launched its first attacks on Feb. 28 earlier this year, investors who took these well-worn paths may have been burned.

Lost Luster

Gold is possibly the biggest disappointment. The price of the precious metal has dropped 21.2% since the war began, according to FactSet.

It's about oil and inflation. The unique mechanics of the conflict created market forces that directly countered gold's typical haven benefits. The war sparked the prolonged blockade of the Strait of Hormuz, which controls roughly 20% of the world's petroleum. This energy crunch sent oil prices soaring, which bled into consumer prices — pushing up U.S. inflation.

Faced with this, the Federal Reserve held interest rates steady — rather than the cuts investors originally expected for 2026 — and signaled potential rate hikes. Because gold is a nonyielding asset (it doesn't pay dividends or interest), high interest rates increase the "opportunity cost" of holding it — meaning investors are missing gains elsewhere while parking their cash in the asset.

Yielding Less

This would often mean a shift to longer-dated treasuries, where investors could get a relatively safe, guaranteed return. But the energy crunch and resulting rise in inflation also hit bond markets.

Normally, when a geopolitical crisis hits, investors rush to buy government bonds, which drives prices up and sends yields down. Instead, bond prices fell, and the 10-year treasury yield spiked to around 4.49%.

Inflation is a big problem for bonds, because a standard Treasury pays a fixed interest rate, rising inflation aggressively eats away at the real purchasing power of those future payments. Investors refused to lock their money into long-term bonds when inflation was actively rising, leading them to dump treasuries and drive prices down.

However, the very short end of the treasury curve did give some respite for investors — 3-month Treasury bills guaranteed a return of nearly 5% in cash equivalents without taking on any of the price-volatility risks associated with longer-term government debt.

Energy Drain

Utilities have also traditionally been a place to park cash during a geopolitical crisis but the Utilities Select Sector SPDR Fund (XLU) — the market-defining exchange-traded fund used to track the U.S. utilities sector — has fallen 5.4% since the war began.

It's been hit by similar problems — a spike in wholesale energy costs caused by the Hormuz closure. Specifically gas, on which electric utilities rely to fire their power plants.

Because they are highly regulated, utility companies cannot simply raise consumer power bills immediately to cover their costs and their profit margins get crushed by the spike in fuel prices.

Moreover, utilities are capital-intensive. Building power grids, power plants, and transmission lines requires billions of dollars, meaning utility companies carry massive amounts of corporate debt.

When the Fed keeps interest rates higher for longer to fight war-induced inflation, the cost for these utilities to roll over or refinance their maturing debt skyrockets. Higher interest expenses cut directly into their bottom-line earnings.

False Hope

In more recent times, Bitcoin has been hyped as a haven — landing the moniker "digital gold" from its supporters, but its star faded before the Iran fighting began. If anything, the war proved that in times of major geopolitical conflict, it behaves like a highly speculative tech stock rather than a safe port. The price of the cryptocurrency has dropped 6.1% since Feb. 28, but has fallen almost 30% so far this year.

Again, higher inflation has proved a problem. Crypto thrives on "cheap money" and high market liquidity. When interest rates are high, the appetite to hold a highly volatile digital asset that pays no yield evaporates. It has also faced competition for capital as, rather than speculating on digital tokens, investors have bought into the artificial-intelligence revolution and chip giants such as Nvidia or Micron.

Cash Is King

That brings us to the U.S. dollar, which has risen 3.2% since the war began.

While other assets were crushed by rising inflation and spiking interest rates, the greenback flourished. The U.S. Dollar Index (DXY) marched to a 13-month high of 101.80 against a basket of other currencies, absorbing global wealth.

The rise in energy prices helped it as global oil, liquefied natural gas (LNG), and broad commodities are still overwhelmingly priced and settled in U.S. dollars.

When the war caused wholesale energy prices to spike, international governments and foreign corporations suddenly needed vastly more dollars just to pay their daily energy import bills. This created an enormous, nonnegotiable global structural demand for the greenback — driving its value up relative to other currencies.

The dollar became the only traditional haven that actively paid investors to hold it during a wartime crisis.

As market landscapes change amid a rapidly evolving AI upheaval the pressing challenge is to identify the new havens.

Write to Patrick O'Donnell at patrick.odonnell@barrons.com

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