‘Gold tends to be a high-beta investment’ and its reputation as a safe-haven is now ‘in question’ – Brooks from Brookings

Gold’s Changing Role in Market Downturns

Gold, once considered a reliable shield against market declines, no longer serves as a dependable hedge. According to Robin Brooks, Senior Fellow at the Brookings Institution and former Chief Economist at IIF and Chief FX Strategist at Goldman Sachs, gold now acts as a high-beta asset—meaning it tends to intensify market selloffs rather than cushion them.

He explained, “Gold has historically been viewed as a safe haven, offering protection when other assets lose value. However, over the past six weeks of conflict, gold prices have dropped by ten percent—far outpacing the S&P 500’s decline of less than one percent. If gold falls more sharply than the S&P 500 during market shocks, it cannot be considered an effective risk hedge.”

Gold’s High-Beta Behavior

Brooks observed that gold is now acting like a high-beta asset, amplifying market downturns instead of mitigating them.

Theories Behind Gold’s Recent Performance

• Emerging Market Central Bank Sales: Brooks discussed the idea that some emerging market central banks may have sold gold during recent turmoil. He pointed out that this was mainly true for Turkey, which reduced its gold reserves by 128 tons to bolster foreign exchange reserves and defend the Lira. Turkey’s approach is unusual, as most other emerging markets abandoned such practices long ago.
• The ‘Debasement Trade’: Another explanation is the surge in gold prices over the past year, which attracted new investors who are more likely to exit during market shocks. This influx of cautious buyers may explain why gold has been behaving like a high-beta asset recently. Brooks believes that once these investors leave, gold could regain its traditional safe-haven status.

He concluded, “Gold’s reputation as a safe haven isn’t permanently lost—it’s just temporarily affected.”

Drivers of Gold’s Rally

Brooks shared a chart illustrating that the rise in gold prices over the past two years was fueled by geopolitical events and Federal Reserve policy decisions.

He noted, “April 2, 2025, marked ‘Liberation Day,’ which triggered a significant increase in gold prices. The real acceleration came after Chair Powell’s Jackson Hole speech on August 22, 2025, which signaled the start of a Fed easing cycle despite ongoing inflation. This moment gave birth to the ‘debasement trade.’”

Brooks also pointed to the December 10 rate cut—the final Fed cut of 2025—as another catalyst for gold’s upward movement. “By January 28, 2026, gold had nearly doubled compared to the previous year. While there were logical reasons for the rally, it eventually became unsustainable,” he wrote.

Gold’s Recent Sell-Off and Market Correlations

Brooks analyzed the recent downturn, referencing a chart that compares daily changes in the S&P 500 with those in precious metals and bitcoin. The chart uses blue bars for data from January 1, 2011, to August 21, 2025; red bars for August 22, 2025, to February 27, 2026; and orange bars for the past six weeks of conflict.

He observed, “Gold has become increasingly pro-cyclical, rising alongside other risk assets and falling when they decline. Although its correlation is lower than that of other precious metals or bitcoin, this offers little reassurance.”