Global Monday Buzz: Safe Havens on a Rollercoaster
Big Story: Safe Havens on a Rollercoaster
If we were to pin down the mostly used word of economists around the world right now, ‘uncertainty’ would definitely make it to the top of the list. From tariffs and trade and everything in between, the past year has brought a whole lot of chaos to the global economy.
And with this heightened uncertainty, came heightened demand for safe-haven assets. 2025 was a rally for gold and silver. However, the start of 2026 has already surpassed those figures and pushed the two precious metals even further up – with gold topping USD 5,000 and silver reaching USD 100 an ounce for the first time ever. Following a record surge, prices dropped dramatically last Friday - especially silver which plummeted 30% marking its worst day since March 1980!
What explains this massive rise and fall in prices?
While the easy explanation would be to label it as heightened uncertainty altogether, analysts point toward few specific reasons behind volatile prices during recent times. Firstly, what drove prices up during this historic surge in the first place? Central banks across the world have increased their purchasing of gold signalling an intent of asset diversification and reducing the dependence on dollar reserves. In context of high uncertainty, gold acts as an asset with no credit risk, independent of the monetary policy decisions of other countries and is resistant to financial shocks.
Another clear driver is the risk perception of investors towards President Trump’s fiscal and foreign policies. In recent weeks, president Trump has put forth the idea of taking over Greenland, signalled possible US involvement in Iran, tried to exert influence over the Federal Reserve, and moved against Venezuela. On top of that, he has continuously threatened higher tariffs on trading partners that has added fuel to the fire.
Outside of investors booking their profits following the surge, the most recent drop in prices can be seen as the market reaction to the nomination of the new Fed Chair, Kevin Warsh – considered to be a relatively ‘safe bet’ or less ‘dovish’ when compared with other candidates. It’s safe to say that markets have accounted for higher risk and is adjusting accordingly which explains the sudden fall.
Is there any underlying message?
Of course, safe-haven assets have their run every now and then during periods of uncertainty and settle down whenever policies become predictable and growth remains stable. However, outside of the current short-term events that push prices up or down, there seems to be a more structural, longer-term shift that may be taking place.
While gold and silver has consistently shielded countries against high inflation and unstable economic conditions, what’s different this time is that many countries are consistently shifting towards gold despite recording low inflation levels. Goldman Sachs points out that only 5% of the world’s gold is held by speculators signalling that this shift is not merely a short-term phenomenon.
The broad message here then, is that the current volatilities in the precious metal market indicate something that goes beyond inflation and short term profit-making. It clearly signals the level of confidence markets hold in the current world of high debt and geopolitical fragmentation. Even when inflation stays low and growth is stable, uncertainty may still remain elevated and be reflected through these markets.
What does this mean for Sri Lanka?
Keeping in line with the rise in global prices, Sri Lanka’s gold reserves also risen considerably in 2025. However more than the rise in topline numbers what matters most at this point are the signals coming from the global environment. As we’ve highlighted before, outside of any major policy reversals on the domestic front, the biggest risk that we see for Sri Lanka right now is global volatility. Being on the lookout for how countries are re-writing the rules of trade, capital flows and geopolitics overall and positioning to fit this ‘world in transition’ would be crucial.
Compiled by: Theeksha Gunasinghe