Flight to ‘safe haven’ funds runs its own risks

Flight to ‘safe haven’ funds runs its own risks

Russia’s invasion of Ukraine has created an unexpected crisis for investors — many of whom had been hoping for a return to economic normality after two years of the Covid pandemic.

Right now, the conflict threatens to disrupt supplies of essential commodities, from both Russia and Ukraine, to western economies already beset by worries about accelerating inflation. Price rises had reached multi-decade highs in the US and Europe even before the fighting began.

The ensuing geopolitical crisis has already created volatility across financial markets as investors look for ways to protect and diversify their portfolios.

And flows in and out of exchange traded funds are again providing a highly sensitive barometer of investor sentiment across all asset classes in times of uncertainty.

Gold — always seen as a safe haven of value in periods of turmoil — has predictably rallied. The price of the precious metal, often held by investors via exchange traded funds, has risen by 6.4 per cent so far this year, trading last week at $1,922 per troy ounce.

This spot price increase has been driven, in part, by a revival in demand for gold ETFs in the last two months.

Inflationary concerns, combined with weeks of growing tensions ahead of the invasion