Is Gold Still a Safe Haven? Yes - And It's Actually Way More Than That

Gold's significance has come back into sharp focus recently. Against a backdrop of escalating geopolitical tensions, persistent inflation uncertainty, and evolving central bank strategies, market attention on gold has intensified—particularly among asset allocators seeking diversification, as gold re-emerges as a critical strategic choice.  

With globalization receding, the world is fragmenting into competing economic blocs. In this emerging multipolar order, gold is reasserting its role as the preferred neutral asset—universally trusted, free from sovereign risk, and strategically positioned to fill gaps left by a weakening dollar-dominated system.  

Historical Drivers of Gold Demand  

Unlike other financial assets, gold carries no credit risk, represents no one's liability, and has served as a store of value for over 5,000 years. Its high liquidity and physical nature make it a reliable asset during market stress. Crucially, gold supply is relatively price-inelastic—new production is costly and time-intensive, often taking 7 to 20 years to develop. This sluggish supply reinforces gold’s scarcity premium, particularly during demand surges.  

One of gold’s most valuable traits is its low or even negative correlation with risk assets during financial stress. Empirical data show that gold tends to appreciate—or at least hold its value—during macroeconomic shocks, making it an effective hedge against tail risks and systemic events (Baur et al., 2021).  

By mid-2023, gold’s upward momentum became evident as markets anticipated a pause in central bank rate hikes (see chart below). This shift, coupled with stubborn inflation and reserve accumulation by central banks, drove strong buying interest. More broadly, after inflationary shocks, financial assets often reprice to reflect eroded purchasing power. Gold, as a tangible asset with no counterparty risk, typically adjusts accordingly.  

A Crisis Hedge  

Gold prices have historically surged during financial shocks. Even after stabilization, prices often remain elevated, albeit with some retracement.  

During the period of rising inflation from 1972 to 1976, gold prices surged by over 300%, ultimately settling 174% higher than pre-shock levels. This rally occurred following the 1971 "Nixon Shock," when the U.S. government ended the convertibility of the dollar into gold and imposed a 10% tariff, triggering a structural repricing. Between 1977 and 1982, gold prices peaked with a 261% increase and ultimately maintained a 144% gain. From 2007 to 2015, gold prices rose by 154% at their peak and finished 85% higher. Although this was not an inflationary period, it reflected financial market instability and some degree of disinflation, highlighting gold's role as a safe haven even in market conditions beyond inflation.

In the current cycle (2020 to 2025), gold prices have risen by approximately 90% compared to the 2018–2019 baseline, though this cycle has yet to conclude.  

This pattern reinforces gold's role as a tactical safe-haven asset: during periods of turmoil, it tends to see significant inflows, while its gains moderate as risk appetite recovers. Crucially, this characteristic distinguishes gold from buy-and-hold growth assets. Instead, as a dynamic allocation tool in multi-asset portfolios, gold provides protection when it matters most—without requiring long-term exposure.  

Since the late 1990s, gold has exhibited a clear relationship with rising EPU—reinforcing its status as a "fear gauge."  

Central Banks: The New Demand Catalyst  

Beyond inflation and consumer cycles, central banks have aggressively boosted gold purchases since late 2021, reflecting reserve management shifts driven by:  

The Ukraine conflict has reshaped the global security landscape, accelerating central banks' shift toward neutral reserve assets like gold amid heightened concerns over asset freezes and escalating geopolitical tensions.

Simultaneously, inflation fears surged: the U.S. M2 money supply expanded by over 40% between 2020 and 2022, while pandemic- and geopolitically-driven supply constraints drove up global commodity costs.  

Central banks' holdings of physical gold reserves have increased over the past five years. In 2024, net gold purchases by central banks surged by 132% compared to 2021, with emerging markets playing a pivotal role—reflecting a broader push for reserve diversification and efforts to strengthen balance sheet resilience. Meanwhile, the market value of central bank gold holdings rose by 51%, driven in part by higher gold prices.

While motivations for accumulating gold vary across regions, the underlying strategy is consistent: central banks appear to be preparing for a world of heightened geopolitical and monetary policy fragmentation, where gold serves as a neutral, sanctions-resistant reserve asset. Whether to hedge against external shocks or maintain domestic currency stability, gold's role in central bank portfolios has grown.

This trend is also evident in gold's share of balance sheets. The rising proportion may reflect either increased gold holdings, a reduction in overall balance sheet size, or both. As shown in the accompanying chart, gold's share has climbed from around 9% at the end of 2020 to 13.5%..  

These moves signal a historic monetary transition, with gold’s reserve role expanding amid macro uncertainty.  

Industrial Demand: Tech’s Structural Boost  

Gold’s use in tech (up 7% YoY, per WGC) is gaining momentum, fueled by AI/semiconductor growth. The U.S. CHIPS Act and Asia’s manufacturing dominance are driving demand for gold’s conductivity/corrosion resistance in AI chips, 5G, quantum computing, and medical devices.  

While industrial demand remains smaller than jewelry/central bank buying, its rigid, strategic nature adds a new structural layer to gold’s demand profile.   

Gold in Multi-Asset Portfolios  

Gold has consistently maintained low correlations with other major asset classes. Over the past five years, its correlation with global equity indices stood at just 0.31—significantly lower than typical stock-bond or stock-stock correlations.

Its correlation with U.S. Treasuries (7-10 year) was 0.39, and with inflation-linked securities (U.S. TIPS Index), 0.47, underscoring gold’s relatively independent behavior even compared to traditional fixed-income exposures. Similarly, gold exhibited limited correlations with global high-yield bonds (0.35) and global core infrastructure (0.37), reinforcing its low synchronicity with broader asset classes.

Notably, gold showed almost no correlation with crude oil (-0.03). Given that stock-bond correlations are far higher than a decade ago—and macro shocks increasingly impact both growth and income assets simultaneously—this cross-asset independence is critical. For portfolio construction, it means gold offers significant diversification benefits, helping to reduce drawdowns and enhance risk-adjusted returns, particularly during periods of broad market stress.  

In conclusion, the world is changing, and gold is no longer just a defensive asset. In a world of fragmented geopolitics, erratic policy, and correlated markets, besides serving as a purely defensive store of value, it could also offer: Diversification via low correlations; Resilience during systemic shocks; Strategic optionality for allocators navigating volatility.