"Buying gold during wartime" doesn't work? Experts reveal the "underlying logic": the safe-haven status remains unshaken!

Originally from: Cailian Press

Cailian Press, March 26th (Editor: Huang Junzhi) Despite ongoing conflict between the U.S. and Iran and persistent geopolitical tensions, 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 war undoubtedly attracted many retail investors who had never traded gold or other precious metals before. It’s reasonable to speculate 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 rebounding in recent days due to market expectations easing.

The second common view is that after the sharp rise in precious metal prices at the end of 2025 and the beginning of 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 overall market volatility has intensified, leading to losses in other positions, especially hedge fund positions. 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.

Overall, Brooks believes these factors do not undermine gold’s safe-haven status nor negate the previous support for gold prices through depreciation 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 index since the start of the U.S.-Iran conflict, as well as their performance after 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% during the same period. Therefore, precious metals have clearly underperformed the broader market.”

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

“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—was almost in the same situation. This again suggests it might be a position cleanup.”

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

“Currently, the way precious metals are traded might resemble risk assets more, which can explain why prices fell as the conflict escalated, and then rebounded in recent days with signs of easing. High volatility may also have caused severe shocks in some markets. When trading losses occur, forced liquidation of profitable positions is common. Finally, with increased uncertainty, locking in profits is entirely reasonable. When the situation is unclear, timely stop-loss is advisable,” he added.

In conclusion, Brooks summarized: “None of these explanations negate the depreciation trade, and I am actually an advocate of such trades. The demand for safe havens beyond debt monetization will continue.”

(Cailian Press, Huang Junzhi)