Weekly Update - Has gold lost its safe-haven appeal?

Gold prices reached historically high levels at the beginning of the year before undergoing a marked correction, amid rising real interest rates and a strengthening US dollar, notably following recent geopolitical tensions. This development may seem surprising given its traditional status as a safe-haven asset. However, it reflects less a challenge to its fundamentals than a short-term adjustment linked to financial conditions. Behind this volatility lies a deeper transformation of the gold market: while supply remains relatively insensitive to price fluctuations due to limited physical stock, demand is increasingly driven by flows associated with both cyclical and structural factors. Over the long term, these drivers should continue to support the resilience of the yellow metal.

Gold is emerging as a strategic asset in the management of central bank reserves. Since 2022, official purchases have increased significantly, particularly in emerging economies, in a context of geopolitical realignment. This trend reflects a desire to diversify reserves, especially away from currencies that may be subject to sanctions. In this respect, gold has a unique characteristic: it is an asset with no counterparty risk, usable independently of international financial systems. It is also highly liquid, giving it a potential role in times of stress. Countries such as Russia, India, and Turkey have recently adjusted their reserves to support their currencies, illustrating its ability to be mobilized in response to balance-of-payments pressures.

A more nuanced safe-haven role in the short term. In periods of tension, its behavior depends closely on the macro-financial environment. The recent rise in real interest rates has increased the opportunity cost of holding a non-yielding asset, weighing on investor demand, as evidenced by outflows observed in some gold-backed ETFs. The appreciation of the US dollar has also exerted downward pressure on prices. These dynamics explain why gold has not outperformed in recent weeks. Nevertheless, historical analysis shows that over longer horizons, the yellow metal tends to provide effective protection: following major geopolitical shocks, its average performance is generally positive, confirming its hedging role over the medium to long term.

Over the longer term, several structural factors should continue to support gold prices. The persistence of macroeconomic imbalances, particularly in the United States, could once again weigh on the dollar and strengthen gold’s appeal. At the same time, central bank demand is expected to remain strong, driven by enduring strategic considerations. Finally, in an environment sometimes characterized by higher correlation between equities and bonds, gold retains diversification benefits. Weakly correlated with other asset classes over the long run and capable of playing a protective role during periods of financial stress, it remains a relevant instrument in the construction of resilient portfolios.

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