Gold Fails the Safe Haven Test Again

In our experience, many financial experts describe gold as an ideal investment during times of uncertainty and inflation (broadly rising prices across the economy).^[i] However, we think gold’s year-to-date performance (denominated in USD since gold is priced globally in US dollars) throws cold water on that idea, as the precious metal has been faltering and recently surpassed the bear market threshold (down -20% from a high) after an early-year boom—torpedoing its reputation as a hedge against almost anything.^[ii]

Gold was riding high entering the new year. It closed 2025 at $4,368 per troy ounce (around £3,620)—near record highs—which inspired forecasts of $5,000 in 2026 in some financial publications we follow.^[iii] That optimism perhaps appeared well-founded after the precious metal hit an all-time high of $5,405 on 29 January.^[iv] But after a bouncy February, gold has slid since March, not long after the war in Iran erupted.^[v] Last week, gold entered bear market territory despite renewed warnings of a weakening global economy and inflation heating up again—conditions that supposedly benefit gold prices, according to conventional investing wisdom we have seen. (In contrast, global stocks rose over the same stretch.^[vi])

But isn’t gold supposed to be a safe haven (an asset that holds its value during times of tumult) when uncertainty and inflation pick up? If so, we think bullion is doing a poor job of fulfilling that role. Whilst there is no foolproof way to measure uncertainty, headlines provide a good indication of what stories have the public’s attention, in our view. The Iran war, which has featured multiple attempts at purported ceasefires. A sharp pullback in global stocks.^[vii] Upheaval in global energy markets, from the restricted Strait of Hormuz to the United Arab Emirates’ quitting the Organisation of the Petroleum Exporting Countries (OPEC) cartel. The ongoing war in Ukraine. Questions about China’s Taiwan ambitions. We have seen inflation ghosts return, too, with prices perking short term due to energy costs and warnings they will heat more—especially in the UK.^[viii] Instead of shining in these conditions, gold has pulled back sharply, leaving it flattish year to date and down -19.4% from its 29 January high in USD after a slight recent bounce.^[ix]

Exhibit 1: An Uncertain 2026 Hasn’t Favoured Gold

Source: FactSet, as of 17/6/2026. Gold spot price, 31/12/2025 – 16/6/2026. Presented in US dollars. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

We have seen headlines say gold is struggling because some monetary policy institutions are raising benchmark interest rates and others may soon follow suit. However, periods of hot inflation (and, sometimes, uncertainty)—which are supposedly beneficial for gold—usually come with rising rates, based on our historical studies. Go back a few years, when America’s Federal Reserve hiked its fed-funds target range from 0.0% - 0.25% to 5.25% - 5.50% between March 2022 and July 2023.^[x] The US Consumer Price Index (CPI, a government-produced measure to track prices across a basket of select goods and services) had been speeding since early 2021 (and peaked in June 2022 at 9.0% y/y) whilst a cornucopia of uncertainties, from the war in Ukraine to fears over energy shortages, weighed on investors.^[xi] Gold didn’t thrive in that 2022 environment, falling as much as -20% in USD from 8 March – 3 November.^[xii] During the Fed’s 2022 – 2023 hike cycle, gold delivered a 1.7% return in USD, trailing global stocks’ 7.9% in pounds.^[xiii]

So we think the argument itself unknowingly acknowledges gold isn’t a hedge against rising prices and scary unknowns. Note, too, gold’s historical performance is all over the place. The US Fed hiked rates from June 2004 – June 2006—when gold prices rose.^[xiv] When the Fed cut rates from July 1990 – September 1992, that supposed support didn’t boost bullion prices, which largely drifted downward throughout the late 1980s – 1990s.^[xv]

We think investors benefit from keeping in mind what gold fundamentally is: a commodity with basically no industrial use and little physical demand outside jewellery, which we think renders sentiment its primary demand driver. Strip away the shiny veneer to see what gold doesn’t do for investors. It doesn’t pay a dividend, generate earnings, buy back its own stock, invest in new product lines or acquire companies to expand market share. And unlike other commodities, our research shows gold tends not to move in long supercycles as high prices encourage investment in new mines that eventually overshoots, turning a supply shortage into a glut.

So we find gold’s price growth depends largely on how investors feel about it. Feelings are fickle and unpredictable, in our view, which is why short-term stock market volatility is impossible to time. If you can’t time stocks’ short-term ups and downs (and we aren’t aware of anyone who has, as we presume they would be a living legend), we reckon you won’t get far with gold, either.