Gold has long enjoyed a reputation as a financial “safe haven” during stormy times. But over the past few months of geopolitical chaos and market panic, the precious metal has moved more like a roller coaster than a steady ship at anchor.

In late January, the gold price surged to an all-time high near US$5,600 per ounce – effectively double what it was a year earlier. It’s lost about 20% since then, sliding sharply while major conflict broke out in the Middle East.

To be clear, gold is still at lofty heights by historical standards, up almost 300% over the past decade. Much of this surge has been driven by “financialisation”.

Put simply, more ways of investing in gold on paper – with complex financial products called derivatives and funds that track its price – have seen a boom in speculation by institutional and retail investors.

But this year’s wild swings in price should shatter 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 to other crises.

Umbrellas and storm shelters

To protect their wealth, investors often seek assets that are either “hedges” or “safe havens”.

A hedge is an investment that generally moves in the opposite direction to the rest of the market on average over a normal, long-term period.

Think of a hedge like holding an umbrella above your head every single day. You’ll stay drier than everyone else when it rains, but you’ll also block out on some of the sunshine (potential gains) when it doesn’t.

Hedging can reduce risks – but limit potential gains for an investor. Suresh tamang/Pexels

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 crashes.

It’s like a storm shelter you only run to during a hurricane.

Where does gold fit?

In a 2016 research study, colleagues and I found gold had some of the qualities of a safe haven, particularly for share markets in Australia, the United States, Germany and France.

During the 2008 global financial crisis, gold was the most stable commodity among the precious metals we studied. Its price did drop, but it avoided the catastrophic losses seen in other precious metals.

It had similar safe haven qualities in 2011, when ratings agency Standard & Poor’s (S&P) downgraded the US’ AAA credit rating to AA+ for the first time in history and many global stock markets fell.

Importantly, those market shocks came out of the financial system itself (a banking system failure and a credit downgrade).

Today, the world faces something fundamentally different: a massive energy shock due to interrupted oil supplies and major damage to oil and gas facilities in the Middle East.

Why an oil shock is different

Traditional finance textbooks will tell you that when a war breaks out, inflation spikes or stock markets crash, investors typically engage in what’s called a “flight to quality” – fleeing riskier assets and moving their money somewhere seen to be safer (such as gold).

In a 2025 research paper, colleagues and I offer a more nuanced view. Crucially, we incorporated data from more recent periods of stock market turbulence, including the COVID pandemic, where gold’s safe haven properties were more muted.

We found gold is still a go-to choice for investors moving out of riskier investments. But it is not an untouchable storm shelter.

Instead of standing completely separate from the panic during a crisis, gold absorbs some of the volatility from both the stock market and energy markets, which can cause its price to fall.

Gold isn’t always a safety net. Market chaos can drag its price down. Marko Ivanov/Unsplash

Ripple effects

Why? For one, market chaos means some large investors may be forced to sell gold to cover other losses or meet financial obligations, such as margin calls (where a lender demands funds to cover the falling value of an asset).

For other large investors, the recent price rally may have created an opportunity to sell high and take profits, or rebalance their investment portfolios.

But there is also the fact gold does 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 severe crisis, forced to chose between a commodity like oil and gold, what does global industry really need? Oil.

Rock, paper, gold

The different ways people are investing in gold is another important factor. Over several decades, gold has become increasingly “financialised”.

Now, it can be bought and sold with ease on “paper” via speculative, complex financial instruments called derivatives, or in increasingly popular exchange traded funds which track the price of gold.

With these funds, you aren’t buying gold itself. You’re buying an asset whose price is designed to track the price of gold in some way.

Today, a massive rise in speculative investment means that commodity prices depend on far more than real-world supply and demand.

Because global investors now hold gold derivatives and conventional stocks at the same time, the risk of exposure to common market shocks has drastically increased.

Rand Low does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Rand Low, Associate Professor of Quantitative Finance, Bond University