"Buy Gold in Wartime" not effective? Experts reveal the "underlying logic": the safe-haven status remains unshaken!

Despite ongoing U.S.-Iran tensions and continued geopolitical instability, gold, traditionally considered a safe haven, seems to have been “disliked” by the market this time, entering a bear market zone.

Robin Brooks, senior fellow at the Brookings Institution, former chief economist at the Institute of International Finance, and former chief FX strategist at Goldman Sachs, stated on Wednesday that since the start of the U.S.-Iran conflict, the main driver of precious metal prices has been a significant increase in retail trading activity in the metals market.

In a recent article, he explained:

There are currently three prevailing theories. First, the frantic rise in precious metal prices before the conflict undoubtedly attracted a large number of retail investors who had never traded gold or other precious metals before. It can be reasonably inferred that a broader investor base might change the way they trade precious metals, making them behave more like risk assets rather than safe havens. This aligns with the phenomenon of gold prices falling when oil prices surge, and recent rebounds over the past day or two as market expectations eased.

The second common view is that after the sharp rise in precious metal prices at the end of 2025 and earlier this year, many investors who held positions in these metals have already reaped substantial gains. Increased uncertainty might prompt profit-taking, so people—reasonably—may have locked in some profits.

The third explanation is that heightened overall market volatility has led to losses in other positions, especially hedge funds. This situation means investors might receive margin calls and need liquidity to meet them. They could sell profitable positions to free up cash, with gold being one of them.

However, overall, Brooks believes that these factors do not undermine gold’s safe-haven status nor negate the previous supportive trend of gold prices driven by devaluation trades. He wrote, “These factors do suggest that the buyer base may have expanded, which is also why we are seeing unusual fluctuations in gold prices now.”

Brooks also shared four charts showing the price trends of gold, silver, platinum, and the S&P 500 since the start of the U.S.-Iran conflict, as well as their performance following the Russia-Ukraine conflict in 2022.

He pointed out: “First, since the outbreak of war, all precious metals have declined. Gold has fallen 15%, silver 25%, and platinum 20%. In comparison, the S&P 500 has declined 5% over the same period. Clearly, precious metals have underperformed the broader market.”

“Second, a 5% decline in the S&P 500 hardly indicates heightened risk aversion, which suggests that gold’s safe-haven properties have not been triggered,” Brooks wrote. “This leads me to believe that the recent decline is a residual effect of the sharp increase in prices and positions in precious metals.”

“Third, the Russia-Ukraine conflict did not trigger a significant rise in gold or other precious metals, and the S&P 500—on a similar time scale—has performed almost identically to the current situation. This again suggests it might be a position cleanup.”

Brooks explained that his personal interpretation of the recent sell-off is that the sharp rise in precious metal prices before the Iran conflict greatly expanded the investor base.

“Currently, the trading behavior of precious metals may resemble risk assets more than safe havens, which can explain why prices fell as the conflict escalated, and rebounded in recent days as signs of easing appeared. High volatility may also have caused severe shocks in some markets. When trading losses occur, forced liquidation of profitable positions is common. Finally, increased uncertainty makes locking in gains entirely reasonable. When the situation is unclear, stop-losses should be timely,” he added.

In conclusion, Brooks summarized: “These explanations do not negate the devaluation trade, and I am actually a supporter of such trades. The demand for safe havens outside of debt monetization will likely continue.”

(Source: Caixin)