11 April 2025
When markets fall sharply and uncertainty takes over, investors often turn to gold. It has long been seen as a safe-haven asset—a place to preserve value when confidence in the broader financial system is under pressure. While it's not a perfect hedge, gold has a strong track record of holding up well during periods of crisis.
Looking back, this pattern plays out consistently. During the 2008 financial crisis, equities lost close to 50% of their value, while gold gained more than 25% as capital flowed out of risk and into defensive positions. In 2020, when the COVID-19 pandemic triggered one of the fastest market selloffs in history, gold surged to record highs as inflation fears and stimulus measures dominated headlines. The 2023 banking crisis followed a similar script—investors responded to financial sector instability by moving toward safer , and gold rallied once again.
What makes gold behave this way? A key reason is that it is not tied to corporate earnings or central bank policy in the same way other are. It does not generate income, but it also does not rely on economic growth to maintain its value. Gold tends to benefit when trust in traditional financial instruments begins to weaken. Its tangible nature, long history, and global recognition give it a unique place in portfolios during times of stress.
Several factors drive the gold price. Inflation and real interest rates are among the most important as gold tends to rise when inflation is elevated, and real yields are falling or negative. Market volatility and geopolitical tension also boost demand, as investors seek stability. The strength of the US dollar plays a role too: a weaker dollar generally supports gold prices by making it cheaper for international buyers. On the supply and demand side, central bank purchases and jewellery demand—particularly from India and China—can significantly influence price dynamics. Investor sentiment, positioning, and macro expectations all contribute to shorter-term movements.
In recent years, the narrative around gold has evolved. It is no longer viewed solely as a defensive asset to hold during crisis periods. Many institutional investors have started including gold in their broader strategic allocations, especially in portfolios that prioritise diversification and long-term risk management. Central banks, particularly in emerging markets, have also been steadily increasing their gold reserves, signalling a gradual shift away from heavy reliance on the US dollar.
Still, gold has its limitations. It does not pay interest or dividends, which can make it less appealing in environments where yields are rising. And although it is known for performing well in times of stress, it does not always respond immediately. Sometimes gold can be held back by competing forces, like stronger dollar momentum or tightening monetary policy.
Ultimately, gold is not a fix-all solution, but it continues to serve an important function. It helps reduce risk during uncertain periods and offers a degree of stability when other become more volatile. In a world where geopolitical tensions, inflation uncertainty, and market shocks are increasingly common, gold’s role in a balanced investment approach remains as relevant as ever.
