"Buying gold during wartime" doesn't work? Experts reveal the "underlying logic": the safe-haven status has not been shaken!

Ask AI · How Retail Investors Are Changing Gold Trading Dynamics?

Financial Associated Press, March 26 (Editor: Huang Junzhi) Despite the ongoing stalemate in the U.S.-Iran conflict and the continued tense geopolitical situation, gold, the “traditional safe haven,” seems to have been “disliked” by the market this time, briefly entering bear market territory.

Robin Brooks, a senior fellow at the Brookings Institution, former chief economist at the Institute of International Finance, and former chief forex strategist at Goldman Sachs, stated on Wednesday that the real driving factor behind the price movements of precious metals since the onset of the U.S.-Iran conflict has been the significant increase in retail traders in the metals market.

In a recent article, he explained:

Currently, there are three theories circulating in the market. First, the insane rise in precious metal prices before the war undoubtedly attracted a large number of retail investors who had never traded gold or other precious metals before. It is reasonable to speculate that a broader group of investors may change the trading dynamics of precious metals to behave more like risk assets rather than safe-haven assets. This aligns with the phenomenon of gold prices falling when oil prices soar, and rebounding in the last day or two due to easing market expectations."

The second common viewpoint is that after the significant rise in precious metal prices at the end of 2025 and the beginning of this year, many investors holding precious metal positions have already realized substantial gains. The increase in uncertainty may lead people to want to lock in profits, so it is logical that some individuals may secure part of their gains.

The third explanation suggests that the overall increase in market volatility has led to losses in other positions, particularly for hedge funds. This situation means that people will receive margin call notifications, and they need liquidity to respond. This may lead them to sell profitable positions to free up cash, with gold being one of those.

However, overall, Brooks believes that none of these factors will shake gold’s status as a safe haven, nor will they negate the devaluation trades that previously supported gold prices. He wrote, “These factors indeed suggest that the buyer base may have expanded, which is also why we are seeing unusual volatility in gold prices now.”

Brooks also shared four charts showing the price movements of gold, silver, platinum, and the S&P 50 index since the beginning of the U.S.-Iran conflict, as well as the performance of these assets after the outbreak of the Russia-Ukraine conflict in 2022.

He pointed out: “First, since the outbreak of the war, all precious metal prices have fallen. Gold has dropped by 15%, silver by 25%, and platinum by 20%. In contrast, the S&P 500 index fell by 5% during the same period. Therefore, the performance of precious metals has clearly lagged behind the broader market.”

“Second, a 5% decline in the S&P 500 index can hardly be described as heightened risk aversion, which means 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 significant rise in precious metal prices and positions.”

“Third, the Russia-Ukraine conflict did not actually trigger a significant rise in gold or other precious metal prices, while the S&P 500 index—on a similar timescale—has almost the same situation as the current one. This again confirms that this could be a position cleanup.”

Brooks stated that his personal explanation for the recent wave of sell-offs is that the sharp rise in precious metal prices before the outbreak of the Iranian conflict greatly expanded the investor base.

“Currently, the trading of precious metals may resemble risk assets more, which can explain why precious metal prices fell as the conflict escalated, and then rebounded in recent days with signs of easing. High volatility may also have caused severe impacts on some markets. When trading losses occur, it is not uncommon for profitable positions to be forcibly liquidated. Finally, with the increase in uncertainty, it is completely reasonable for people to lock in profits. When you are unsure about the situation, you should stop losses in a timely manner,” he added.

Finally, Brooks summarized: “These explanations do not negate devaluation trades, and I happen to be an advocate of such trades. The demand for safe havens beyond debt monetization will continue.”

(Financial Associated Press, Huang Junzhi)