Gold has not let us down; rather, we continue to misinterpret its purpose

Is Gold Still a Safe Haven?

Gold prices have come under significant pressure recently, with central banks offloading reserves and investors questioning whether gold still serves as a reliable safe-haven asset.

Jumping to the conclusion that gold has lost its protective qualities misses the point of what gold is meant to do.

Despite experiencing its steepest drop since the early 1980s—during a period marked by intense geopolitical turmoil—gold has not rallied as some expected. Instead, many have sold their holdings, leading some to view this as a sign of failure.

However, this behavior actually highlights gold’s true purpose. Gold is not simply an asset that rises during every crisis; rather, it acts as a source of liquidity when markets are under strain. Think of gold less as an emergency alarm and more as a financial tool that can be tapped when needed, even if that means selling it during turbulent times.

When financial conditions tighten, the demand for cash increases. Investors often liquidate assets that have performed well to raise funds quickly—and gold, after a prolonged period of strong gains driven by central bank purchases and investor interest, fit that bill. Its recent selloff is not a sign of failure, but a result of its prior success and liquidity.

Central banks, too, have been turning to their gold reserves for cash. Analysts suggest that the need for liquidity has prompted some central banks to sell gold, shifting their focus to immediate economic stability, currency defense, and energy needs rather than simply maintaining balanced reserves.

For example, Turkey recently used nearly 60 tonnes of its gold reserves to shore up its currency, demonstrating how gold can be deployed as a strategic asset in times of crisis.

This isn’t the first time Turkey has relied on its gold reserves. In 2023, the country sold 159 tonnes of gold between March and May to address soaring domestic demand during a period of high inflation. After stabilizing the situation, Turkey’s central bank quickly resumed buying, and by 2025, its gold reserves had exceeded previous levels.

While central banks and governments may continue to tap into their gold reserves for liquidity, the fundamental reasons for holding gold remain unchanged. The motivations for accumulating gold have not disappeared.

The greatest error investors can make is to interpret gold’s recent weakness as a sign that it no longer matters. Gold continues to fulfill its historical role during periods of stress: offering liquidity, absorbing selling pressure, and serving as a financial safeguard. Even central banks rely on gold when markets deteriorate.

Gold has not failed. What has been disproven is the notion that gold will always move upward during every crisis.