"Gunpowder, Germs, and Steel" 2025 Financial Edition: Guns and Precious Metals Reaching God Status! Other "traditional safe havens" collectively failing.

Undoubtedly, gold, as a precious metal, is the clearest major commodity of 2025 and the biggest winner in the "safe haven asset" category. Apart from gold, nearly all other traditional "safe haven" assets have significantly underperformed the US stock market benchmark - the S&P 500 index, let alone compared to the gold spot price which has surged over 70% this year. In a year filled with trade friction, geopolitical turmoil, and concerns over a looming "artificial intelligence bubble burst", the defense and military industry sector, as well as precious metals trading prices including gold, silver, and platinum, have all seen significant increases. On the other hand, traditional "safe haven assets" excluding gold have collectively failed to perform, creating an extreme pricing situation unprecedented in the history of capital markets. The global economy unexpectedly maintained high heat (not falling into stagflation or recession as economists predicted at the end of 2024), with policymakers actively pushing for loose monetary policies and concerns over recession and inflation diminishing. After the frenzy of AI swept through the market, it was hit by the "AI bubble" storm, geopolitical tensions continued to rise, shaping the unprecedented market landscape this year where all safe-haven assets, excluding precious metals, have failed collectively. So far in 2025, precious metals have outperformed nearly everything else. Both silver and platinum have seen gains surpassing 100%, while the spot price of gold has surged over 70%, marking the largest increase since the global oil crisis of 1979. This performance has overshadowed the MSCI global stock market benchmark index, which recorded gains of about 20%. Whether gold, silver, and platinum have also fallen into their own speculative bubble remains an unresolved question that commodity traders will need to answer in 2026. However, their strength is supported by strong central bank demand for gold and their role as essential inputs in broader technological development (such as silver's importance in electrification transformation and AI data center construction). The above chart shows that precious metal assets have emerged as winners - gold, silver, and platinum collectively surged in 2025, outperforming the MSCI global stock index. However, the broader commodity index has performed extremely poorly this year, being completely overwhelmed by the continuously expanding expectations of an oil surplus. Despite several moments of extreme supply shortages in the Middle East in 2025 and concerns of oil prices jumping to $100 a barrel, the international oil price benchmark - Brent crude oil futures prices - actually declined by 20% year-on-year, currently at almost half the previous worry level. The "expectations of an oil surplus" continue to disturb the commodity market. If you are worried about intensifying global geopolitical conflicts and are considering investing in traditional defensive stock market sectors (such as utilities and essential consumer goods, the most typical "traditional safe havens"), this may not be the best choice. A better option would be the defense and military industry sector, known as an "alternative safe haven" sector closely related to geopolitical tensions. Recent statistics show that US aerospace and defense stocks recorded a high of 36% in 2025, while similar military stocks in Europe saw a significant increase of 55%, mainly due to Germany and the European continent seeking to rearm following Trump's announcement of a comprehensive focus on domestic defense construction in the US. Normally, defense and military industry sectors are not considered by traders as the traditional "safe havens", but rather as "alternative safe haven assets" due to their relative strength in conflict escalation and rearmament cycles. However, they are fundamentally stock risk assets, affected by valuation, interest rates, market beta, policy, and order cycle impacts. Therefore, the logic behind defense might lean more towards "profit enhancement driven by fiscal budgets and military spending" rather than being completely equated with traditional safe havens like gold/US bonds, or completely different from "traditional defensive sectors" in the stock market during economic downturns or volatility periods, with more stable demand (such as utilities, essential consumption, and healthcare). Guns, Germs, and Steel Jared Diamond, an American evolutionary biologist wrote the popular science and humanities book "Guns, Germs, and Steel," telling the world that the disparities in wealth, technology, and power within human society are mainly determined by geographic and ecological conditions (tameable flora and fauna, spread of agriculture, resources, and transmission conditions), rather than "racial gifts". "Guns, Germs, and Steel" are the near-term carriers that have emerged during expansion in societies such as Europe, reflecting their military technology, immunity to pathogens, and metal and organizational capabilities built up from these underlying conditions. Applying Jared Diamond's logic to the current capital market, the majority of traditional defensive investment strategies that have appeared to be "safer" over the long term (government bonds, certain defensive sectors, some currencies, volatility hedges, etc.) have not provided any protection effects in 2025, but have become liabilities. Even cryptocurrencies like Bitcoin, touted by some investors as "digital gold", recorded significant declines by the end of the year. Bond assets also had an incredibly poor year. Globally, the "risk-free government bond price index" fell unexpectedly by about 1% when measured in US dollars - a rare significant underperformance compared to the MSCI global stock index and likely closing the year with a negative value, but when considering the total return including yield, they edged slightly higher by about 6%. The broader global composite bond benchmarks (such as the Bloomberg Multiverse Index, encompassing government, supra-national debts, institutional bonds, and corporate bonds) also barely performed well, with a price increase of only about 1%, with a total return close to 7%. The returns from these bond assets were even less than half of the MSCI global stock market benchmark index - a performance that is the best since pre-pandemic 2019. Within the global stock market, taking traditional defensive strategies is definitely not the big winner in 2025. The S&P 500 index, boosted by tech giants and AI investment themes, has performed brightly. The benchmark has already been up 15% for the year, driven by a strong rebound in the US economy in the second half of 2025 and the expected interest rate cut by the Federal Reserve, along with the AI investment boom led by leading AI computing pioneers like Nvidia, Oracle, and Broadcom, collectively lifting most assets on Wall Street. Statistics show that the S&P 500 "growth stock benchmark" has surged by as much as 20%, which is more than twice the increase seen in the "value stock" benchmark, clearly demonstrating that in a tumultuous year, defensive strategies have completely failed and have overall performed worse than the stock market benchmark and growth stock benchmark. So far in 2025, the total return of the S&P 500 index has surprisingly exceeded the equal-weighted version of the index by 5 percentage points, contrary to the expectations of almost all Wall Street analysts at the end of 2024 - they generally believed that the equal-weighted version of the S&P 500 index would perform more robustly as market momentum shifted from tech to other sectors. While utility, healthcare, and financial sectors have performed decently, with gains exceeding 10%, they all significantly lag behind the S&P 500 index, as well as major indices like the Nasdaq and the MSCI global stock benchmark. The consumer goods sector has only seen an increase of about 2%, making it the worst-performing sector in the entire US stock market in 2025 so far. Lastly, in terms of stock market benchmark performance around traditional safe haven assets, the Dow Jones Industrial Average - a stock market sector traditionally known as a safe haven - has also underperformed the S&P 500 and Nasdaq 100 indexes. In terms of sovereign currencies, the Japanese yen and the Swiss franc are traditionally seen as safe haven assets - but one of them has also disappointed in 2025. Initially driven by the weakening US dollar in the first half of 2025, both the Japanese yen and the Swiss franc surged in tandem, but the yen subsequently gave back almost all of its gains. The Bank of Japan's further interest rate hike also did not provide any help, as investors were concerned about additional fiscal stimuli and sold the yen due to uncertainties in the domestic bond market following the arrival of the new Prime Minister Takamichi - leading to a continuing rise in Japanese domestic bond yields. Calculated in terms of the effective real exchange rate against major trading partners, the yen fell about 4% over the year. However, the Swiss franc held onto its early gains and, along with gold and silver, became one of the few assets in 2025 that truly "realized their safe-haven properties", but compared to precious metals, the Swiss franc seemed less significant. But if you had considered the US dollar as a safe haven during times of geopolitical pressure at the beginning of the year, you must rethink - as the US dollar or the yen in 2025 showed no signs of being a "secure" or "safe haven" asset. The DXY, or the US dollar index, saw a significant drop of 12% during the most turbulent months of global geopolitical and trade events in 2025, consistently weakening during several hotspot events in the Middle East, Eastern Europe, and even the Caribbean region. In 2025, volatility strategies favored by derivative traders also failed. For investors concerned about market disturbances, another strategy could have been to buy volatility indexes closely related to options, in order to profit significantly from the sharp stock and bond price fluctuations and is a method often used by some derivative traders as a "option-based" hedge. However, in 2025, these "parachutes" focusing on volatility also failed to deliver, meaning that apart from defense and military assets, being excessively cautious did not really bring any benefits this year. Although financial markets experienced "roller coaster-like" volatility in the spring, the VIX fear index linked closely to S&P 500 index volatility - i.e., reflecting the one-month implied volatility of the S&P 500 index options - was about 2 points lower by the end of the year compared to the beginning. A corresponding bond market volatility indicator, the Bank of America MOVE index, has fallen to less than two-thirds of the initial level and is lower than half of the peak in April. Volatility indicators in major foreign exchange markets are also lower.