In times of geopolitical upheaval, investors traditionally flee to perceived safe-haven assets. Historically, the dollar has been considered a safe-haven. You can see this trend in my chart below. The chart compares the VIX Index (a.k.a the Fear Index), which is a measure of investor risk aversion in equity markets, to the dollar index. Over recent years, increases in the Fear Index have been highly directionally correlated with the dollar index. But the most recent spike in the Fear Index has been accompanied by a falling dollar index. The fear index hasn’t yet spiked to levels comparable to those at the height of the financial crisis, but the divergence is nonetheless notable.
Is reckless government spending and money printing finally beginning to destroy the dollar’s reputation as a safe-haven asset? It is too early to be sure, but my chart doesn’t offer much comfort. If you don’t own some gold, yes even at over $1,400 an ounce, and other safe-haven currencies, what are you waiting for?
Jeremy Jones, CFA
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