After the failure of gold as a safe haven, the RMB exchange rate and the Swiss franc compete for safe-haven assets

Recently, the global commodities market experienced a sharp decline, with spot gold dropping as much as 10 intraday and spot silver falling over 16%. Panic quickly spread to stocks, exchange rates, and other markets, with Asian stock markets generally under pressure. Gold, once considered a safe haven by investors, suddenly failed, raising a deeper question: when gold’s safe-haven properties are no longer reliable, which assets truly serve as safe refuges?

In this market reshuffle, the performance of safe-haven assets like the RMB exchange rate, Swiss franc, US dollar, and Japanese yen varied greatly, reflecting a process of revaluation of global risk assets.

Gold Plunge Sparks a Major Shift in Safe-Haven Assets

This sharp decline in precious metals broke the long-standing market perception. Since last year’s de-dollarization wave, overseas investors have been reducing their dollar exposure, with precious metals serving as their main alternative. But when metals suddenly plummeted, this process reversed, and investors quickly shifted back to traditional safe assets like the dollar and US Treasuries.

This asset rotation reflects the market’s dynamic balance under different risk environments. When extreme risks emerge, investors tend to abandon cyclical assets and flock toward the most liquid, lowest-risk assets.

US Dollar and US Treasuries Reassert Safe-Haven Status

The US dollar index rebounded about 100 points during this decline, rising to around 97.1, marking a significant gain. Meanwhile, US Treasury yields fell across the board, with the 1-year SOFR dropping 5 basis points to 3.44%, and the 10-year Treasury yield retreating to around 4.21%. This indicates large-scale capital inflows into the dollar and Treasuries, reaffirming their status as the world’s safest assets.

The rapid decline in Treasury yields especially highlights a key point—when investors accept lower yields to buy Treasuries, it signals a preference for capital preservation over returns. This is classic risk-averse behavior.

Renminbi Resilience Amidst a Rising Dollar Index

Interestingly, despite the significant rise in the dollar index, the RMB performed surprisingly well. With the dollar index up 100 points, the RMB’s central parity rate only rose slightly by 17 basis points, showing a defensive stance. The onshore spot rate remained stable, not even breaching the 6.9550 level.

This suggests that the RMB has demonstrated relative stability amid global risk revaluation. Even more interestingly, the RMB index rebounded sharply during the same period, indicating that the RMB appreciated against a basket of non-dollar currencies. From one perspective, the RMB’s movement resembles a “G2-like” pattern—an independent trajectory parallel to the dollar.

This resilience is driven by relatively stable domestic economic fundamentals, ongoing RMB internationalization, and confidence in China’s long-term asset value. Even as global risk appetite declines, the RMB’s appeal as an emerging market currency persists.

Swiss Franc’s Safe-Haven Halo Fades, Dragged Down by Gold

In contrast, the Swiss franc, once regarded as a traditional safe-haven currency, faced difficulties during this decline. Switzerland’s economic structure is closely linked to gold processing and exports, which has increased the correlation between the franc and gold prices.

Last week, EUR/CHF broke below 0.92—the lowest since the Swiss National Bank removed the euro/Swiss franc exchange rate floor in 2015. While it appears the franc strengthened, the reality was a negative impact from the sharp drop in gold prices. When gold plunges, the franc, as a traditional safe haven, should stabilize, but its high correlation with gold dragged it down, limiting further declines in EUR/CHF.

This highlights an important phenomenon: when multiple assets come under pressure simultaneously, their previously effective safe-haven qualities can become compromised due to high correlation. The Swiss franc’s predicament shows that industry-specific factors can sometimes constrain a currency’s stability.

Weak Yen and the Long-Term Play of Fiscal Policy

The Japanese yen also failed to demonstrate its usual safe-haven resilience during this turmoil. The yen’s weakness is closely tied to Japan’s political and economic environment. Polls suggest the ruling coalition may win over 300 of 465 seats in the House of Representatives, indicating more aggressive fiscal stimulus policies ahead.

When governments promise more fiscal support, markets often expect increased money supply, which can weaken the national currency. As a result, the AUD/JPY risk sentiment indicator has recently become ineffective—the yen, which should reflect risk aversion, did not appreciate but instead weakened alongside the dollar index.

Lessons in Diversification and Moderate Leverage

What is the biggest takeaway from this market upheaval? First, traditional single-asset safe-haven strategies are no longer sufficient in today’s complex environment. Gold, once seen as the ultimate safe asset, has proven that no asset is eternally safe.

Second, prudent leverage control is crucial. High leverage amplifies small price movements into systemic risks. Diversification can help smooth out these extreme shocks.

The stability shown by the RMB, the structural issues facing the Swiss franc, and the policy-driven weakness of the yen all demonstrate that the effectiveness of safe assets depends heavily on domestic economic fundamentals, policy environment, industry structure, and market liquidity. Investors need to dynamically adjust their allocations among RMB, Swiss franc, US Treasuries, and other assets based on evolving market conditions, rather than relying on any one asset’s perpetual safety.

The true art of risk management lies in constructing a portfolio that combines RMB exchange rates, Swiss franc, US Treasuries, and other assets to adapt to different scenarios. When gold’s safe-haven role falters, this multi-asset allocation framework’s value becomes truly evident.