Gold and silver have suffered their steepest declines in years, abruptly reversing a rally that had propelled prices to historic highs. After surging more than 60% year over year, gold has fallen sharply in recent sessions as investors reassess risk, unwind leveraged positions, and respond to a resurgent US dollar. For portfolios heavily reliant on precious metals for protection, the pullback is forcing a broader question: where should defensive capital go when metals lose momentum?

When Safe Havens Become Crowded Trades

The precious metals rally that dominated late 2025 and early 2026 was driven by a potent mix of geopolitical anxiety, concerns over US fiscal discipline, and doubts about central bank independence. Renewed tariff tensions, military actions, and a weaker dollar all contributed to strong inflows into gold- and silver-backed ETFs. Over time, however, speculative positioning intensified, leaving the market vulnerable to abrupt reversals.

That vulnerability was exposed as the dollar rebounded following President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve chair. Warsh’s reputation as an inflation hawk shifted expectations around monetary policy, supporting the greenback and undermining dollar-denominated commodities. At the same time, higher margin requirements imposed by CME Group amplified selling pressure, forcing leveraged traders to reduce exposure.

The Dollar Factor and Defensive Rotation

The rebound in the US Dollar Index has been a decisive headwind for gold and silver. As the currency strengthened, the opportunity cost of holding non-yielding assets rose, accelerating profit-taking. Strategists increasingly view the recent selloff not as a collapse of the long-term metals thesis, but as a necessary reset after an overheated run.

In this context, investor behavior is shifting from outright fear-driven positioning to more nuanced risk management. Rather than abandoning defensive strategies altogether, capital is rotating toward instruments that offer stability, income, and diversification without relying solely on commodity price appreciation.

Defensive ETFs Beyond Precious Metals

One area attracting renewed interest is government bonds. Long-duration US Treasury ETFs such as iShares 20+ Year Treasury Bond ETF tend to benefit during growth scares and equity drawdowns, particularly if economic uncertainty intensifies. Even amid rate volatility, Treasuries remain a core ballast for diversified portfolios.

Low-volatility equity strategies are another alternative. Funds like Invesco S&P 500 Low Volatility ETF or iShares MSCI USA Min Vol Factor ETF tilt toward stocks with more stable earnings and lower price swings, historically offering downside protection during market stress.

Sector-based defensives are also gaining attention. Utilities, consumer staples, and healthcare tend to show resilience when growth expectations soften. ETFs such as Utilities Select Sector SPDR Fund provide exposure to regulated, cash-flow-generative businesses that are less sensitive to economic cycles.

Dividend-focused strategies add another layer of defense. Products like ProShares S&P 500 Dividend Aristocrats ETF emphasize companies with long histories of dividend growth, appealing to investors seeking income stability amid volatility.

What to Watch Going Forward

As markets digest the repricing of precious metals, volatility is likely to remain elevated. Defensive positioning in 2026 is less about hiding in a single asset and more about balancing multiple stabilizers across asset classes. Investors will be watching the dollar’s trajectory, real interest rates, and geopolitical developments to gauge whether gold resumes its role as a core hedge or cedes ground to alternative defensive ETFs. In the meantime, diversification—not concentration—appears to be the defining principle of modern portfolio defense.