Economic and Geopolitical Tensions Fuel Demand for Safe-Haven Assets

The ongoing economic and geopolitical tensions have fueled demand for safe-haven assets, with Bitcoin, gold, and the Swiss franc being in the driver’s seat.

Bitcoin’s Price and ETFs

While Bitcoin’s price has pulled back recently, it remains much higher than the year-to-date low. Also, Bitcoin ETFs continue to add assets this year, with their cumulative inflows rising by $54 billion since January last year.

Geopolitical and Economic Risks

Geopolitical and economic risks are high. The U.S. economy shows signs of stagflation as consumer and producer inflation continue rising. The year-over-year U.S. consumer inflation rate (CPI) grew from 2.4% in June to 2.7% in July. The core CPI, excluding food and energy, accelerated to 3.1%.

U.S. Job Growth and Unemployment Rate

U.S. job growth is also slowing, according to data released on Friday. The economy added just 22,000 jobs in August, while the unemployment rate moved to 4.3% — the highest level since the pandemic.

Expectations for Inflation Report and Fed Meeting

Economists expect that the upcoming inflation report will show that the headline consumer price index rose to 3% in August, continuing a trend that has been going on for months. Therefore, economists expect the Fed to cut interest rates by 0.25% in the upcoming meeting. Cutting rates in a stagflation risks pushing inflation higher in the coming months.

Demand for Safe-Haven Assets

Demand for safe-haven assets has also jumped as trade relations between the U.S. and other countries worsen. For example, India is reportedly aligning itself with China due to the Trump administration’s tariffs. The other significant risk has been the threat to Federal Reserve independence. Trump has considered firing Fed chair Jerome Powell, and has recently fired Lisa Cook in his bid to achieve lower interest rates.

Performance of Safe-Haven Assets

These risks explain why the U.S. dollar index has plunged, moving from the year-to-date high of $110 in January to $97.73 today. At the same time, the gold price has recently surged to a record high as ETFs have added substantial inflows in the past few months. China’s central bank has bought gold in the last eleven consecutive months, bringing its holdings to $74 million troy ounces. Goldman Sachs analysts see the gold price hitting $5,000.

Swiss Franc as a Safe Haven

The Swiss franc has also become a safe haven as it surged by 13% against the U.S. dollar. Investors love the low-yielding franc because of Switzerland’s stability, neutrality, and low public debt.