The truth behind gold's decline amid market turmoil

Gold, long treated as a safe-haven asset, has been sold off and is losing value, challenging the assumption that it automatically rises during periods of heightened geopolitical risk. While gold still remains elevated over the long term, its recent decline reflects a shift in how markets are responding—particularly to an energy-linked shock that is reshaping investor priorities.

Gold’s decline after an all-time high

At the end of January 2026, gold prices reached an all-time high near 5,600 USD per ounce, roughly double the level a year earlier. Since then, gold has shed about 20% of its value, falling as geopolitical tensions in the Middle East flared.

This pattern runs counter to the traditional expectation that war and escalating conflict typically boost gold as investors seek refuge from risk.

Why the safe-haven playbook is not working as before

Over the past decade, gold has still risen substantially—up about 300%—but the mechanism behind that performance has changed. One key driver is “financialisation,” meaning gold is increasingly traded through financial instruments such as ETFs and derivatives, rather than only through physical holdings.

Hedge versus safe haven

The article distinguishes between two concepts:

• Hedge: an approach that reduces long-term risk but may also limit upside when markets are favorable.
• Safe haven: an asset that tends to perform primarily during extreme crises.

Gold has historically fit the safe-haven description. For example, during the 2008 global financial crisis and after the U.S. credit rating downgrade in 2011, gold held its value better than many other assets.

An energy shock changes the market “order”

According to Rand Low, Professor at Bond University (Australia), the current environment is not a typical financial shock but a large-scale energy shock. Disruptions in oil supply and damage to oil and gas facilities can trigger broad economic consequences.

In such conditions, the idea that “cash flows into gold” does not hold as reliably. Instead, gold can move in line with volatility.

Three factors behind gold’s sharp fall

The article highlights at least three reasons gold has fallen amid rising crisis:

• Liquidity pressure: when markets are chaotic, large investors may sell assets to cover losses or meet margin calls. Gold is often among the assets sold first to raise cash.
• Profit-taking after a long rally: after substantial gains, funds may take profits and rebalance portfolios, particularly when risk becomes harder to predict.
• Structural demand differences: gold has lower practical utility than oil. If oil is the “lifeblood” of the economy—used for transport, manufacturing, and energy—then during an energy crisis real-world demand tends to favor oil over gold.

Gold is now more tied to financial markets

Another shift is how gold is traded. Much of today’s gold activity occurs through “paper” instruments such as ETFs and derivatives, linking gold more directly to the broader financial system.

As a result, investors can hold gold alongside stocks within the same portfolio. When markets become volatile, these asset classes can move together, pulling gold into broader selling waves rather than keeping it insulated from risk as in earlier crises.

Implications for investors

The article concludes that the long-standing belief that gold is always an absolute safe haven is being eroded. Gold may still help reduce risk, but in complex crises—especially those tied to energy—it can also be drawn into selling cycles.

The broader lesson is that no asset is completely safe, even one that has symbolized stability for thousands of years.

Source: The Conversation