Gold Hits $3,000 Amid Safe-Haven Rush and De-Dollarization Trend

Gold prices soared past $3,000 per ounce last week, hitting a historic high fueled by rising safe-haven demand and global de-dollarization. Investors are flocking to gold as geopolitical and economic uncertainties rise, reinforcing its status as a perceived store of value.

Campbell Harvey, a finance professor at Duke University, linked the surge to “de-dollarization and safe-haven demand.” He pointed out that China has increased its official gold reserves by 15% since November 2022, likely to enhance confidence in the yuan. Harvey referenced the Economic Policy Uncertainty Index, which measures policy-driven economic instability, noting that “gold always shows up on that list” of protective assets.

However, gold’s historical performance tells a mixed story. While it gained during events like Black Monday (1987), the Gulf War (1990), and the Great Recession (2007–2009), it failed to deliver during the Asian financial crisis (1998) and the 2020 COVID-19 market crash. From 2021 to 2022, gold prices declined by over 6% despite surging inflation, underscoring its limitations as an inflation hedge.

Investors should also be cautious when investing through gold ETFs. The SPDR Gold Shares (NYSE:GLD), the largest physical gold-backed ETF, has shown tracking discrepancies. Over the past five years, GLD’s annual price return was 12.2%, while its net asset value (NAV) rose 11.5%. Though this gap recently favored investors, it could reverse, potentially impacting returns.

While gold remains an attractive asset in uncertain times, its inconsistent performance and risks tied to ETF structures mean investors should weigh their options carefully. Despite its allure, gold may not always be the fail-safe hedge it appears to be.