Global market risk aversion intensified noticeably this week, but capital flows among traditional safe-haven assets showed a rare divergence: US Treasuries regained favor, the yen rose to key technical levels, and gold bucked the trend, falling below $4,000 per troy ounce.

Gold touched $3,986.50 on Friday, a more than three-month low, with a cumulative weekly decline of 4%. Berenberg analysts noted that gold’s decline “against a risk-off backdrop” represents a “notable divergence.” Meanwhile, French fiscal concerns pushed the yen to a one-year high against the euro, and the dollar fell below the key 157.50 support level against the yen, briefly dipping to around 156.9. The yield on the 10-year US Treasury note dropped back below 5% on Thursday for the first time in a month, making it the most favored safe-haven destination this week.

The concentrated release of risk aversion stemmed from a combination of pressures: France’s budget deficit triggering concerns over European sovereign debt, suddenly heightened questions over whether AI capital expenditure can continue to secure financing support, and persistently tense geopolitical conditions in the Middle East.

Rare Divergence Between Gold and US Treasuries

Gold’s performance this week clearly ran counter to its traditional safe-haven attributes. Generally, falling US Treasury yields are positive for gold, which offers no yield, but investors continued to sell gold this week while flooding into Treasuries. Berenberg analysts said the last time gold performed so weakly amid a sharp decline in Treasury yields was December 2008, the darkest phase of the global financial crisis.

Analysts believe gold’s current weakness is closely tied to its role as a speculative asset over the past year. That speculative frenzy had pushed gold to an all-time high above $5,400 in January this year, but as those traders gradually exited, gold prices have since fallen by more than one-fifth.

Erik Norland, chief economist at CME Group, said the biggest driver of this year’s precious metals decline is the market’s shift in expectations from rate cuts to rate hikes. However, he also noted that given fiscal deficits eroding bond market confidence, rising inflation, geopolitical risks and continued central bank gold purchases, gold prices remain far above early 2025 levels—which is “surprising.”

World Gold Council data show that central bank gold purchases rose in September to the highest monthly level since November 2024. John Reade, the council’s senior market strategist, said at a precious metals summit that high interest rates have reduced gold’s investment appeal, while high energy prices have weakened consumers’ ability to buy gold. “This year, in the absence of safe-haven buying, fundamental factors carry more weight,” he said.

Several fund managers at the summit remained cautiously optimistic about gold’s outlook, expecting prices to rebound, but current technical and flow-related pressures make that expectation face greater uncertainty. Berenberg analysts warned that Friday’s close below the $4,000 mark “could trigger further outflows from gold ETFs and technical selling across the gold equity sector.” Gold ETF demand had already declined in the first half of this year and rebounded in the third quarter as September sales improved, but current price action is putting new pressure on related fund flows.

Yen Emerges as Biggest Winner in Safe-Haven Trade

While gold lost its footing, the yen became the biggest beneficiary of safe-haven trading this week. Amid mounting French debt concerns, the yen rose to a one-year high of 175.20 against the euro, while the dollar fell to a five-week low of 156.08 against the yen.

Goldman Sachs FICC analyst Chryssafis named the yen as the preferred hedge in the current AI bubble-burst scenario, with the dollar having broken below the 157.50 multi-bottom support and the 50-day moving average against the yen. The bank believes declining appeal of US dollar assets and capital repatriation to Japan will drive yen appreciation. Goldman Sachs’ long-term fair value model shows the yen is undervalued by about 40% against the dollar, making it the most undervalued among the currencies it tracks.

Japanese government data show that consumer prices excluding fresh food rose 2.1% year-on-year in September, accelerating from 1.7% in August, but inflation remains moderate compared with the US and Europe, which also enhances the yen’s appeal relative to other major currencies.

Kyugo Hasegawa, a market economist at Mizuho Bank, noted in a research report that France’s fiscal problems boosted the Swiss franc while raising market vigilance over a possible Swiss National Bank move to limit franc appreciation, which may channel some safe-haven flows toward the yen. But he also stressed that whether the yen can rise further ultimately depends on the direction of Japan’s domestic fiscal and monetary policy.

Safe-Haven Asset Landscape Faces Reassessment

This week’s performance across asset classes shows that the market’s criteria for selecting “safe-haven assets” are changing. US Treasuries regained favor on the certainty of declining yields, the yen benefited from valuation discounts and capital repatriation expectations, and gold temporarily lost safe-haven buying support after speculative funds retreated.

From a flow perspective, gold ETF flows will be a key short-term variable. If the breach of the $4,000 mark triggers further exits by algorithmic and trend-following funds, the gold equity sector could face spillover selling pressure. For investors, this week’s divergence suggests that safe-haven allocation is not a simple substitution of a single asset—interest rate paths, fiscal risks and valuation levels are jointly reshaping the relative appeal of various safe-haven instruments.