The Price Is the Risk
The greatest risk doesn’t come from low quality or high volatility. It comes from paying prices that are too high. This isn’t a theoretical risk; it’s very real. – Howard Marks
Over the last several weeks, I’ve noticed a trend in which financial prognosticators describe their strategy as moving into “risk-off trades” or “safe haven assets.”
It sounds like an appealing strategy during a time of war until you look at what they’ve actually been buying.
Gold As a Safe Haven
At the beginning of 2024, an ounce of gold cost a little over $2,000. By 2025, it was up to $2,700. On February 28, 2026, when military strikes started in Iran, the price had risen to around $5,300.
In a little over two years, gold rose 150%. Nothing about the metal changed. Its weight, shine, and industrial use were identical. The only difference was how much people were willing to pay for it. And that is precisely where the risk lived. Not in geopolitics and not in central bank policy, but in the price itself.
Howard Marks has written that investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions have already been factored into its price, and no new buyers remain.
I don’t know if gold reached its near-term peak popularity at the start of the war, but today, as I write this note, the price of gold has fallen to a recent low around $4,100. A decline of roughly 20% in three weeks.
None of this is to pick on gold or suggest that owning some of it is foolish. Diversification is important. But when you hear the word “safe haven,” it should be in reference to something like a short-term treasury that doesn’t move much in price or have much upside.
When you hear “safe haven” applied to an asset that has recently doubled in price because people are nervous, it just means you are a late mover into a popular trade with a lot of risk.
Personal Note:
As I mentioned at the end of last week’s note, we took a cruise with my parents for our kids’ spring break. My dad doesn’t usually smile for pictures, so I consider this one a notable success.
Also, we had a client social event on the patio of Sylvia’s Enchilada Kitchen last night. I forgot to take pictures, but I had a great time and would like to give a huge thank-you to everyone who came out.