Are safe-haven assets still important?

Author: Ray Dalio

Introduction: A Week That Changed Everything

Some weeks seem ordinary and uneventful, but they can become turning points amidst the undercurrents. Last week may have been such a moment, rewriting our assumptions and forcing us to rethink those seemingly certain beliefs. Gold and silver, long regarded as the default choices for safe-haven assets, may be entering an entirely different chapter. The question is, can we perceive it in time, or will we only realize it in hindsight?

After studying the market for a lifetime, you will find that the most important moments often do not stand out at the time. They do not come with flashing lights or loud declarations proclaiming that a trend has ended. Instead, they appear subtle and quiet, only revealing their significance in hindsight. This is precisely why they are difficult to grasp and easily overlooked. What we may have witnessed last week could be a turning point in the gold and silver cycle.

For many years, the story of gold and silver has been clear and consistent: governments have been borrowing heavily, central banks have been printing money on a large scale, and the purchasing power of currency has declined. In this context, holding precious metals is almost a one-way bet. They are an antidote to reckless policies, insurance against systemic failure, and a value anchor when paper promises become questionable. This logic holds, and those who hold gold and silver have been rewarded. However, no narrative, no matter how reasonable, lasts forever. Every force in the market is cyclical. When debt is too high, it triggers deleveraging; when inflation soars, it will eventually trigger tightening; when risks are mispriced, they will eventually be corrected. The same goes for safe-haven assets, which shine brightly in certain cyclical phases, but when the conditions that drive them up begin to reverse, they fade into obscurity.

This reversal signal is becoming apparent. They are not prominent enough to make headlines, but they are obvious to those who pay attention to the underlying mechanisms. Bond yields are rising, which changes the opportunity cost of holding precious metals. If you can get a decent return from government bonds, then holding gold, which does not generate returns, becomes less attractive. This change in relative attractiveness may seem technical, but it will overall alter the flow of billions of dollars.

At the same time, after years of injecting liquidity, the central bank is now beginning to tighten. Liquidity is the oxygen of all markets. When liquidity is abundant, almost all assets rise, including gold and silver; when liquidity is withdrawn, competition for capital intensifies. In such an environment, even the strongest narratives may lose their influence. This is why I believe last week was important. It marked a potential turning point in the cycle, and once-reliable investments may become fragile.

Gold and silver have not crashed, and their role as long-term stores of value has not disappeared, but the forces driving them up are weakening, while the factors dragging them down are strengthening. Looking back at history, this pattern has repeatedly occurred. In the late 1970s, precious metals surged due to uncontrollable inflation. However, by the early 1980s, rising interest rates and tightening monetary policy brought about a bear market for gold that lasted for two decades. Investors who assumed that yesterday's effective strategies would last forever paid a heavy price. They mistook one phase of the cycle for an eternal truth.

Today's dangers are similar. It is not to say that gold and silver are worthless; far from it. They remain powerful tools for diversification and protectors of long-term wealth, thriving under specific conditions. However, last week may mark the end of a favorable phase and the beginning of an unfavorable one. If that is the case, continuing to hold them based on past beliefs may no longer be reasonable. This is why it is so important to pay attention to turning points. They are the distinction between wealth growth and erosion. You can identify the end of trends and protect yourself from downside risks. But if you ignore them because the signals conflict with your beliefs, you will be caught off guard.

The most difficult part is emotion. People become attached to their investments, especially those that perform well. For the past decade, gold and silver have been a safety blanket for many investors. Now questioning their role feels almost like betrayal. But the market does not care about your emotions or loyalty. It operates on causality, regardless of what you think should happen. Therefore, the prudent approach at this stage is not to blindly sell off, but to calmly reflect. Ask yourself: Have the driving factors from the previous phase peaked? Are new driving factors gaining enough strength to reverse the cycle? If the answer is yes, the conclusion is obvious: you must adapt, even if it makes you uncomfortable.

Last week may be remembered as a turning point for gold and silver from accumulation to distribution. If so, it will be one of those quiet moments that define the future of global portfolios. We cannot determine this immediately, but waiting for certainty often means you have already missed the turning point. This is the essence of successful investing: the willingness to see reality as it is, rather than how you wish it to be; and the courage to act when signals indicate a change in the cycle. Most people fail to do this. They cling to the familiar, defend old narratives, and linger too long. Only a few who can detach, who can recognize the shift in trends, are the ones who protect wealth and prepare for the next phase.

Therefore, although it may be difficult to accept, we must face the possibility that the past week may have changed everything for gold and silver.

The historical role of gold and silver as safe-haven assets

One of the biggest forces driving the market is the relationship between yields and liquidity. This is not an abstract concept, but a lever that determines the flow of funds, which assets provide returns, and which assets lose attractiveness. Currently, these two levers are transforming in a way that directly threatens the investment logic of gold and silver.

First, let's look at the yield. For most of the past decade, investors have been in an environment of interest rates close to zero. In this context, holding non-yielding gold or silver has almost no cost, as the returns from alternative assets are negligible. This environment has provided a free runway for precious metals. They can rise based on narratives and fear, without being undermined by competition from safer, yielding assets. But the situation has changed now. Bond yields are rising, and they are rising in a way that alters investment logic. A 5% yield on U.S. Treasuries might not be exciting for those seeking quick returns, but it is an attractive option for institutional investors managing trillions of dollars. It's safe, highly liquid, and there are returns waiting. When this choice exists, the relative appeal of holding non-yielding metals significantly decreases.

This shift does not mean that gold and silver are without function, but rather that the marginal preference has changed. Investors will ask: why hold assets that do not generate cash flow when I can obtain substantial returns from government bonds? Amplifying this question to pension funds, sovereign wealth funds, and asset management companies, you will see how the flow of funds begins to tilt. Even a small-scale reallocation from metals to bonds can create an irresistible drag.

Then there is liquidity. If the yield is the price of money, liquidity is the quantity. Over the past decade, central banks have injected a large amount of liquidity into the system through quantitative easing, asset purchases, and ultra-low interest rates. This environment has almost lifted all assets, especially gold and silver. Excess cash has flowed through the system, allowing investors to allocate to hedging and diversified investment assets, which has greatly benefited precious metals. However, now the situation is the opposite. Central banks are withdrawing liquidity by reducing their balance sheets, allowing bonds to mature, and maintaining stricter policies than in recent years to combat inflation.

This liquidity withdrawal is like pulling oxygen out of a room. Suddenly, every asset is competing for a smaller capital pool. In this competition, non-yielding hedge assets often lose priority first. Imagine: when liquidity is abundant, investors can freely diversify widely, including non-yielding assets; when liquidity is scarce, they become more selective, leaning towards assets that provide yield, growth, or direct protection. Precious metals, while offering long-term stability, do not have cash flow, and thus fall down the priority list.

The two forces – rising yields and tightening liquidity – are not temporary fluctuations, but rather a structural shift that reflects deeper issues. The government is burdened with historic levels of debt, making higher yields a necessity to attract buyers. Central banks are struggling in the tension between combating inflation and avoiding systemic collapse. These dynamics will not resolve in a week or a month. They define the entire phase of the cycle. This is why the pressure on gold and silver may be more persistent than many expect.

History has clear lessons on this. In the early 1980s, when Paul Volcker raised interest rates to nearly 20% to curb inflation, gold fell from over $800 an ounce to below $300. For several years, the fundamentals of gold did not change: it remained scarce, durable, and still an asset for value storage. What changed was the environment. Suddenly, yields became attractive, and liquidity became scarce. The cycle turned, and gold paid the price. Today's situation is not entirely the same, but the rhythm is similar. The upward pressure on yields and the downward pressure on liquidity are sending the same signal: the winds that once supported precious metals may be turning against them.

Why is the cycle more important than the narrative?

The lesson is not to panic, but to understand the cause and effect relationship. If you hold gold and silver, you need to ask: Are the forces driving them up still dominant, or are the factors dragging them down now stronger? Ignoring this shift will be costly. The market does not care about your loyalty to any asset. It cares about the flow of funds, incentives, and returns.

In fact, this means that investors should reassess their asset allocation. This does not mean completely abandoning precious metals, but rather questioning whether they should still hold the same weight in the portfolio as during times of low yields and ample liquidity. The world has changed, and allocations must change accordingly.

The difficulty of this change lies in the fact that it does not announce itself with a single headline. It unfolds week by week through a steady rise in yields and a gradual withdrawal of liquidity. It feels like background noise until you suddenly realize that the environment is completely different. This is what we are experiencing now.

Successful investors must learn to see these background changes before the changes become obvious. You must connect the dots between monetary policy, liquidity flows, and asset performance. Most people do not do this. They only react after price changes occur. But those who can take a step back, study the causal mechanisms, and adapt early are the ones who can preserve their wealth.

The bottom line is simple: gold and silver are no longer competing in a field without rivals. They are now competing with assets that offer returns and safety, and this is happening in a world of liquidity contraction rather than expansion. This changes everything. It does not undermine the long-term investment logic of precious metals, but it means that the cycle has shifted. Those who fail to recognize this will experience the painful consequences of holding too long.

Loss of liquidity and its impact on the market

One of the most misunderstood aspects of the market is the concept of "safety." Investors often view safe-haven assets as fixed, eternal categories: gold is a safe-haven asset, the US dollar is a safe-haven asset, and government bonds are safe-haven assets. But the truth is that safety is not absolute; it is relative. It changes with time, circumstances, and investor psychology. What we are seeing now is a shift in the direction of capital seeking safe havens.

For decades, gold and silver have held a privileged position. Whenever fear rises—whether due to a financial crisis, war, or reckless monetary policy—investors instinctively flee to precious metals. They become the default safe haven, waiting for the storm to pass. This pattern has persisted for so long that many believe it to be eternal. But nothing in the market is eternal. The expression of fear evolves just as the expression of greed does. Over the past week, this reality has become even more apparent.

We see that the capital, which used to flow almost entirely into gold and silver, is now diversifying into a broader range of safe options. Geopolitical shocks no longer push precious metals higher with the same regularity. Instead, funds are flowing into defense and energy stocks, relatively strong currencies, and digital assets that the younger generation considers alternatives. Fear has not disappeared; on the contrary, it may have intensified, but the tools for expressing fear have diversified.

This is important because the market is not only about fundamentals but also about capital flows. If investors believe that digital assets or defensive stocks are a better hedge against instability, then these capital flows will support these assets at the expense of precious metals. When capital flows change, prices change accordingly. Gold and silver may still hold intrinsic value, but their ability to capture marginal fear capital is no longer guaranteed.

It is worth exploring the reasons for this transformation. One part is the generational difference. The new generation of investors has grown up in the age of digital currency and blockchain, and they believe that protection can come from decentralization rather than shiny metals stored in vaults. For them, Bitcoin or other digital stores of value are not speculative novelties but legitimate alternatives. This has not rendered gold obsolete, but it has certainly diluted its monopolistic status as a universal safe-haven asset.

Another part of the reason is practicality. In the interconnected global economy, security is often sought in assets that can be used quickly and flexibly. Sovereign wealth funds or large institutions may find it easier to hedge geopolitical risks by directly investing in volatile energy or defense companies than by passively holding metals that wait for sentiment to rise. These choices may not always be rational in the long term, but in the short term, they determine the flow of funds, and the flow of funds determines prices.

There is also the issue of trust. In the past, distrust in the government and the financial system automatically translated into trust in gold and silver. But now, distrust is more dispersed. Some distrust flows towards gold, but there is also a flow towards digital assets, holding foreign currencies, and even real estate in politically stable areas. Security has become decentralized. This decentralization of fear means that gold and silver can no longer be assumed to capture the majority of protective capital as they did in the past.

This does not mean that precious metals have lost their utility. They still serve as a long-term store of value, protecting wealth from the effects of currency devaluation. However, in the short term, their role as a primary safe-haven asset is being challenged. When monopolies turn into competitive markets, returns change, profit margins shrink, and stability weakens. What was once reliable has become uncertain.

The key insight is that investors have not abandoned the idea of hedging. They have not become reckless, but have diversified their definition of "protection." Fear still exists, but has found different outlets. This psychological shift, although seemingly subtle, could redefine the entire cycle of precious metals.

Risk aversion shifts to alternatives

From a causal perspective, the cycle is obvious. First, instability rises; second, investors seek safety; third, safe options expand; fourth, capital is dispersed among these options. The result is that gold and silver, which once dominated the third step, now must share this step. In the market, sharing capital flows is equivalent to losing momentum.

This is important because most people are still anchored to the old assumption: that gold and silver always soar in a crisis. They believe that past money flows must continue, even when evidence shows that this is not the case. This is how they get trapped, holding positions that are no longer performing as expected.

A wiser approach is to recognize the evolution of hedging demand. This does not mean abandoning precious metals, but rather adjusting expectations and strategies. Gold and silver still have a role, but they are no longer the only insurance policies. They are a layer of protection, not the entire fortress.

Therefore, when we say that the past week may have changed everything, part of the meaning is: it marks a clear rupture of precious metals' monopoly as a safe-haven asset. Fear still exists, but the capital associated with fear is expressing itself in new ways. This shift may not reverse, and in fact, as more investors adapt to alternatives, it may deepen further.

For those willing to face reality, this is both a warning and an opportunity. The warning is not to rely too heavily on yesterday's assumptions; the opportunity is to diversify, think more creatively about protection, and align with the ways in which fear actually drives capital flow.

Gold and silver once held a dominant position. Under the right conditions, they may rise again. However, it is crucial to recognize the expansion of the definition of safe-haven assets. Ignoring this is going against the trend, while accepting it means adapting. And adapting is the only way to survive in an ever-evolving market.

Fundamentals and Timing: Investor Traps

One of the biggest mistakes investors make is confusing fundamentals with timing. They assume that if a certain asset has strong fundamentals, it is always a good investment. But the market does not work that way. Even if the fundamentals of an asset are good, if you buy it at the wrong stage of the cycle, you could lose half of its value. This is precisely the danger with gold and silver right now.

From a broader perspective, the fundamentals of gold and silver have not changed. They remain scarce, durable, and widely recognized as stores of value. They cannot be printed by governments, have no counterparty risk, and have preserved wealth through wars, depressions, and currency collapses. These truths are as valid today as they were centuries ago. However, fundamentals only tell you what an asset is; timing tells you how an asset is priced in the market. Pricing determines whether you are making money or losing money. You might own the best assets in the world, but if you own them in the wrong cycle, the market will make you feel like you are holding something worthless. This is the paradox that most investors fail to grasp.

Think back to the early 1980s. Gold had skyrocketed more than twenty times in the 1970s, and the fundamentals had not deteriorated. It remained a scarce metal and a hedge against currency depreciation. But the cycle changed, interest rates rose, liquidity tightened, and inflation was controlled, leading to a reversal of the capital flows that had once supported gold. The result was a brutal bear market lasting two decades. Any investor who confused fundamentals with timing suffered greatly.

The same principles apply today. The fundamentals of gold and silver may still be excellent, but if the environment changes due to rising yields, contracting liquidity, and competition from alternative safe-haven assets, their prices may stagnate or decline, even if their intrinsic quality remains unchanged. Ignoring this will lead to a long and painful drawdown, destroying returns and confidence.

This is why timing is so important. Investing is not just about identifying good assets, but understanding when these assets will be influenced by market cash flows and psychological rewards. Investors holding gold during periods of monetary expansion and currency depreciation seem smart; those holding gold during tightening cycles and rising yields seem foolish, even though the asset itself has never changed.

The psychological challenge lies in the fact that people fall in love with the story of an asset. They tell themselves, "Gold is real money, it will always have value, it protects me." This is true in the long term. But when this truth becomes an excuse to ignore opportunities, it turns into a trap. They stubbornly hold on, while the cycle goes against them, losses accumulate, yet they refuse to adapt because they believe the fundamentals will save them. But fundamentals cannot save you from poor timing. Fundamentals only ensure that the asset will still have value decades later, not protect you from the fluctuations in between, which can destroy your capital or cause you to miss out on other opportunities.

Therefore, successful investors think of the two separately. They respect the fundamentals but act based on timing. Think about how professionals handle bonds, stocks, or currencies. They do not just ask whether the asset has strong fundamentals, but whether the environment currently supports it; where the money is flowing; what the incentives for investors are; whether the cycle is in a favorable phase. The same discipline must also be applied to gold and silver. Otherwise, it is confusing belief with stubbornness.

Currently, signals indicate that the cycle for precious metals has become less favorable. This does not negate their fundamentals; it just means that the timing may no longer be on their side. If you continue to hold onto beliefs under different conditions, you may mistakenly perceive a long drawdown as safety. This safety is an illusion.

Discipline, Adaptation, and Clear Perception of Reality

This distinction is crucial as it separates those who protect their wealth from those who lose it. Investors who can say "gold is valuable, but not at this stage of the cycle" have the flexibility to preserve capital and redeploy it when conditions improve. Investors who insist that "gold is always good, no matter what" bind themselves to a narrative rather than adapting to reality.

Ultimately, the fundamentals tell you what to hold, and timing tells you when to hold. Ignoring either side of the equation will expose you to unnecessary risks. Holding gold and silver without considering timing is like sailing without accounting for the tides. The ship may be strong, but if the tide goes out, you will still run aground.

Therefore, the question investors must ask is not "Are gold and silver good assets?" The answer is always yes. The real question is: "Are gold and silver the right assets for this stage of the cycle?" The answer may be changing.

An incorrect timing is not only a financial danger but also a psychological one. Prolonged underperformance can erode confidence, leading to forced selling and even a complete abandonment of precious metals before the cycle becomes favorable again. This is why awareness of timing is not optional, but a key to survival.

A prudent approach is to respect the fundamentals while staying in sync with the cycles. This means reducing exposure in unfavorable environments, preserving capital during pullbacks, and being prepared to increase exposure when conditions are again favorable for precious metals. This discipline distinguishes resilience from regret.

Gold and silver are always important, but they won't always rise. If the past week marks a turning point, relying solely on fundamentals won't protect you. Recognizing this difference and taking action could be the difference between preserving wealth and watching it erode in the coming years.

Conclusion: Action is ahead of hindsight.

The hardest part of investing is not understanding the mechanisms. Anyone can learn how interest rates affect currencies or how liquidity impacts asset prices. The most difficult aspect is psychological adjustment. When reality changes, most people can see the data and read the headlines, but few can break free from their assumptions and adjust their strategies in time. This is why cycles punish the majority and reward the minority.

Now, gold and silver are testing this discipline. For years, the logic of precious metals has been consistently reinforced by the strength of: monetary easing, currency devaluation, and global instability. Investors build strategies around these assumptions, believing that precious metals are the ultimate hedge and will not fail. For a long time, they were right. But the conditions have changed. Yields are rising, liquidity is waning, and safe-haven demand is being diverted by alternatives. The cycle that once strongly supported gold and silver is no longer the cycle of today.

The problem is whether investors can accept it and act accordingly. Most people won't. They will cling to the old narrative, insisting that precious metals must continue to perform because they always have. They will interpret every small rebound as confirmation, every drop as manipulation, and every warning signal as irrelevant. They will rationalize, and this rationalization will lead to losses.

Successful few can detach from emotions. They do not ask what should happen, but rather what is happening. They do not cling to old narratives, but observe the actual flow of funds, incentives, and psychological changes. When they see these changes, they act, even if it means going against past beliefs.

This discipline distinguishes the adaptable from the stubborn. Historically, at every major turning point, the majority of people resist adaptation. When stocks enter a long-term bear market, investors hold on because they cannot acknowledge the changing conditions; when bonds enter a long-term drawdown, people overallocate because they remember the good times. The pattern is always the same: people fight yesterday's battles, clinging to yesterday's strategies, while today's reality erodes their wealth.

Gold and silver now face the same risks. Disciplined investors recognize that it may be necessary to reduce their roles, not because they lack value, but because the environment no longer rewards them in the same way. This discipline is not about permanently giving up on precious metals, but rather about protecting current capital to effectively redeploy it in the future.

Adaptation also means broadening one’s horizons. If the definition of safety is changing, the portfolio must reflect this. It’s not about relying on a single hedge, but rather considering multi-layered protection: part in precious metals, part in bonds, part in defensive stocks, and part in alternatives. This diversification of defense is resilience in a changing world.

The key is to see reality without bias. Reality is not what you want, nor is it what your emotions think it should be. It is the sum of the forces that drive the market: yields, liquidity, policies, psychology. These forces are not static, so your strategy cannot be static. To succeed, you must evolve with them.

Discipline also requires humility. No one can perfectly predict. You can never be sure when a turning point will arrive. What you can do is interpret probabilities and manage risks accordingly. If the odds of precious metals decrease, reducing exposure is discipline, even if you are uncertain. If the odds later improve, increasing exposure is also discipline, even if it feels late.

This mindset is rare because it is uncomfortable. It forces you to admit that you might be wrong, or that the conditions you relied on have disappeared. Most people avoid this discomfort by doubling down on old beliefs. But avoidance does not protect wealth; adaptation does.

The past week may have been quiet but it is a key signal, marking a shift where the forces supporting precious metals give way to the forces that constrain them. If this is true, the adaptors will preserve capital, while the resistors will watch it erode.

The real challenge today is not whether gold and silver are good or bad, but whether you have the discipline to recognize that the story has changed. Precious metals will not disappear, and they will still hold value for decades to come. However, your wealth is not built over theoretical decades; it is built year after year, cycle after cycle, by aligning with the current forces that matter.

The lesson is simple yet difficult to practice: adapt or be punished. The market does not yield to your preferences and will not reward you for your loyalty to assets. It only rewards those who can see the reality and act accordingly. A week that could change everything is a test of this discipline. Those who pass will move forward with wealth, while those who fail will learn again that stubbornness is the most expensive trait of an investor.