Gold could be losing its shine as investment safety net

Gold prices hit a historic peak in April and remain near that level. Traditionally seen as a “safe-haven” asset, gold has long been favoured by investors during crises, as they move away from riskier assets like stocks. However, with both “safe” gold and “risky” stocks rising together recently, some experts suggest gold’s reputation as a reliable refuge in turbulent times may be fading.

In August 2025, the S&P 500 index also reached an all-time high and continues to trade close to that mark. Historically, analysts expected gold and equities to move opposite to each other, creating a “hedging” effect where gold offset stock market losses (and gains). A recent article published on The Conversation explores why gold has traditionally served as an investor safety net and why that dynamic may be shifting.

Looking back, the article notes that gold prices surged during the oil shocks of the 1970s as the global economy slipped toward recession, then declined through the late 1990s when stock markets soared, and fell again as economies recovered after 2009.

Yet, since then, gold’s trajectory has increasingly mirrored that of stocks. Recent research I contributed to examined several factors behind this convergence—and why the classic safe-haven effect is weakening.

Currently, the world economy is emerging from a phase of high inflation and elevated interest rates. Central banks are now cutting rates, with more reductions anticipated, encouraging consumer spending and corporate investment.

Growth indicators are generally positive, as are company earnings. Optimism about artificial intelligence and its potential to boost productivity and economic performance is another driver lifting equity markets.

At the same time, geopolitical uncertainty persists—stemming from Russia’s war in Ukraine, tensions in the Middle East, particularly involving Iran, and trade disruptions in the Red Sea. The article's author argues that these factors all threaten global trade and commodity prices, including oil and food.

Added to this is the unpredictability of US President Donald Trump’s trade agenda. The author believes that his repeated tariff hikes, reversals, and adjustments have introduced volatility into global commerce. Both these conflicts and Trump’s trade stance heighten risk in the global economy—supporting the case for gold buying and boosting its value.

Historic role of gold in financial markets

Following the dotcom crash of the early 2000s, gold began to behave more like a conventional financial instrument. A major shift came with the advent of exchange-traded funds (ETFs), the first of which launched in 2004, allowing investors to purchase shares linked to gold.

The number of gold ETFs has grown dramatically since, especially after the 2008 financial crisis, making gold a common feature in diversified portfolios. Demand for such funds has surged recently.

Meanwhile, the dominance of the US dollar as the global reserve currency is under increasing scrutiny. While it remains central to trade and international payments, some nations like China and Russia are exploring pricing key commodities like oil in their own currencies.

According to the article, the uncertainty associated with Trump’s policies only amplifies these challenges to the dollar’s supremacy. As a result, central banks have boosted gold reserves as an alternative store of value.

Gold today sits firmly alongside equities, bonds, and other commodities as a standard investment option. Its role is now as a portfolio component rather than a pure hedge.

Nevertheless, The Conversation piece acknowledges that gold retains enduring appeal. Its scarcity, combined with demand for jewellery and industrial use, underpins its intrinsic worth. Recognized globally, gold is expected to remain highly sought after for years to come.

By Nazrin Sadigova