Most asset classes have been dragged down by the current macroeconomic environment: stocks, particularly tech stocks, have been heavily sold off since the beginning of the year. Other stocks have also lost value, with the S&P 500, a stock index that includes the largest US corporations, losing nearly 20% of its value since its all-time high. Bond prices have also fallen, and cryptocurrency prices have plummeted.

Gold is typically regarded as a safe haven by investors during times of crisis. But, not this time: gold has fallen in value relative to the US dollar since the crisis began.

Dollar Strength and Rising Treasury Yields

The strength of the US dollar is one of the reasons why investors are not particularly enthusiastic about gold right now. In early May, the US dollar index, which measures the value of the dollar relative to a basket of six other currencies, hit a 20-year high. Because gold prices on the global market are typically denominated in US dollars, the dollar's strength has made gold investments more expensive for non-dollar investors.

Another reason why investors are not rushing into gold is because US treasury yields have risen significantly since the beginning of the year. This has made investments in bonds relatively more attractive than in the past and created opportunity costs for gold investments.

So, while there is still concern about the geopolitical outlook and a potential escalation of the conflict in Ukraine, investors currently seem to prefer the US dollar or US bonds as their safe haven investments.

Furthermore, there is a good chance that the US dollar will continue to rise, at least in the short term. The reason for this is that the US Federal Reserve appears determined to combat inflation. Fed Chair Jerome Powell stated in a speech in mid-May that the Fed would do whatever it took to reduce inflation. If the Fed continues to raise interest rates, the dollar will become more appealing, and higher rates will also raise treasury yields.

Commodities Markets

Investors have recently also fared better with other investments than gold in commodities markets. Energy commodities, such as oil and gas, have seen an increase in value. Both are likely to keep going up if the conflict in Ukraine continues for a longer time.

That said, considering that gold is the number one traditional safe haven investment, it is
likely to also benefit from rising inflation and geopolitical turmoil in the medium to long run. As the last weeks have demonstrated, much of that will depend on the future price development of the US dollar.

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