Despite having reached historic highs in January, gold’s upward trajectory is not being maintained with the instability caused by the conflict in Iran and the spike in oil prices.
Gold has always enjoyed a reputation as a financial “safe haven” in turbulent times. But in recent months of geopolitical chaos and market panic, the precious metal behaved more like a roller coaster than like a ship safely anchored.
At the end of January, the price of gold reached a historical maximum close to 5600 dollars per ouncepractically double the value of a year earlier. Since then, it has lost around 20% of its value, falling sharply as a major conflict broke out in the Middle East.
It is important to highlight that gold is still at high levels by historical standards, with a appreciation of almost 300% in the last decade. Much of this rise was driven by “financialization”.
Simply put, more ways to invest in gold on paper, with complex financial products called derivatives and funds that replicate your pricegenerated a boom in speculation by institutional and individual investors.
But this year’s strong price fluctuations should destroy any remaining illusion that gold is always a safe haven. To understand why, we need to look at how modern financial markets work – and, in particular, why an oil shock is different from other crises.
Umbrellas and storm shelters
To protect their wealth, investors generally look for assets that are “hedges” or “safe havens”.
A hedge is an investment that, on average, moves in the opposite direction to the rest of the market over a normal long-term period.
Think of a hedge like holding an umbrella over your head every day. It will be drier than everyone else when it rains, but will also block some sunlight (potential gains) when it doesn’t rain.
A safe haven, on the other hand, is an investment that generally moves in the opposite direction to the rest of the market only during sudden periods of extreme stress or crises.
It’s like a storm shelter which you only run to during a hurricane.
Where does gold fit in?
One from 2016 found that gold possessed some of the qualities of a safe havenparticularly for the stock markets in Australia, the United States, Germany and France.
During the 2008 global financial crisis, the gold was the most stable commodity among the precious metals studied. Its price fell, but avoided the catastrophic losses seen in other precious metals.
It displayed similar safe-haven qualities in 2011, when the risk rating agency Standard & Poor’s (S&P) lowered US credit rating from AAA to AA+ for the first time in history and many global stock markets fell.
It is important to highlight that these market shocks came from the financial system itself (a bankruptcy of the banking system and a decline in credit).
Today, the world faces something fundamentally different: a massive energy shock due to the disruption in oil supplies and extensive damage to oil and gas facilities in the Middle East.
Why an oil shock is different
Traditional finance textbooks say that when war breaks out, inflation soars, or stock markets plummet, investors typically engage in what is called “escape to safety” – abandoning riskier assets and transferring your money to something considered safer (like gold).
A 2025 survey offers a more nuanced view. Crucially, it incorporated data from more recent periods of stock market turmoil, including the COVID-19 pandemic, where gold’s safe-haven properties were more attenuated.
It turned out that gold is still a popular choice for investors divesting from riskier investments. But It is not an invulnerable shelter against storms.
Rather than remaining completely insulated from panic during a crisis, the gold absorbs some of the volatility both the stock market and the energy market, which could cause its price to fall.
Chain effects
Why? Firstly, the chaos in the market means that some large investors may be forced to sell gold to cover other losses or meet financial obligations, such as margin calls (when a creditor demands funds to cover a drop in the value of an asset).
For other large investors, the recent price rise may have created an opportunity to sell at a high price and make profitsor rebalance your investment portfolios.
But there is also the fact that gold not have as much essential intrinsic value as something like oil. There is not much industrial demand for it compared to other commodities.
In a serious crisis, forced to choose between a commodity like oil and gold, what does global industry really need? Oil.
Stone, paper, gold
The different ways people invest in gold is another important factor. Over several decades, gold has become increasingly “financialized.”
Now, it may be bought and sold easily on “paper” through complex, speculative financial instruments called derivatives, or in increasingly popular exchange-traded funds (ETFs) that track the price of gold.
With these funds, you are not buying the gold itself. You are purchasing an asset whose price is designed to track the price of gold in some way.
Today, a massive increase in speculative investment means that raw material prices depend on much more than real-world supply and demand.
As global investors now hold gold derivatives and conventional equities simultaneously, the risk of exposure to common shocks market share has increased drastically.
