Spot gold has recently experienced consecutive declines. On the evening of the 19th (Beijing time), spot gold fell below $4,500 per ounce, with a daily drop exceeding 2%.
As of press time on the 20th, spot gold was trading at $4,498.98 per ounce. Its year-to-date gain is a mere 4.19%, yet it has fallen approximately 20% from its peak earlier this year (reached on January 29th at $5,598.75 per ounce).
The significant volatility of gold prices at historically high levels has cast doubt on the metal's safe-haven status.
Gold is not a safe haven for assets like stocks. Dickson Tang, Senior Investment Strategist at DBS Bank (China), explained that an asset does not become a safe haven simply because its price is not rising constantly, nor does it become a risk asset just because it experiences a sharp decline. Gold does not hedge against risks in the stock or bond markets; instead, it serves as a hedge against U.S. dollar risk.
Tang believes that currently, major central banks worldwide, except for U.S. allies, are almost universally reducing their holdings of U.S. Treasuries and increasing their gold reserves. In the short term, due to geopolitical issues in the Middle East, some oil-dependent nations are selling gold, but this trend is expected to reverse to buying once the situation stabilizes.
According to Tang's observations, over the past 20 years, the majority of months have seen negative real interest rates in the U.S. due to inflation, yet the Federal Reserve has never immediately raised interest rates upon entering negative territory. Negative real interest rates have become the norm, and the Fed requires more substantial data before tightening monetary policy. While the logic that interest rate hikes suppress gold holds true, the timing for such hikes is still far off. From 1998 to the present, across the four cycles from when the Fed stopped cutting rates to the end of the next rate hike, gold experienced only one minor decline, while the other three cycles saw significant gains. Therefore, the cessation of rate cuts or the initiation of hikes does not necessarily mean gold will only fall.
Tang pointed out that the only factor that could categorize gold as a risk asset is its high volatility, characterized by frequent sharp rises and falls. Unless one is firmly convinced that the U.S. dollar must appreciate, gold remains the best tool for hedging against dollar risk. However, gold is not a safe haven for assets like stocks, bonds, or commodities. In the medium to long term, gold is still driven by three factors: frequent geopolitical risks, a structurally weaker U.S. dollar outlook, and the prevailing trend of de-dollarization in reserve holdings.
Xu Wenyu, Director of the Macro Research Group at Huatai Futures Research Institute, stated that any asset may face a correction after a short-term sharp rise, which has little to do with whether the asset is categorized as risky or safe-haven.
"Understanding gold requires focusing on its fundamental characteristics as an asset. Gold is a 'stability' asset, with its stability defined relative to the instability of economic growth, especially under the modern debt-based economic model. Therefore, when the economy begins to repair its own instabilities—such as resolving debt issues or deleveraging—gold's safe-haven role temporarily weakens, putting pressure on its price, while the attractiveness of risk assets like stocks relatively increases," Xu explained.
Wang Hongying, President of the China (Hong Kong) Institute for Financial Derivatives Investment, noted that from a short- to medium-term perspective, the recent decline in gold still constitutes a technical or cyclical adjustment. The intrinsic investment value of gold has not fundamentally changed. In fact, central banks of multiple countries, including China's, continue to increase their gold holdings steadily. Meanwhile, U.S. 10-year Treasury yields are repeatedly reaching new highs, and the long-term investment value of gold driven by future inflation persists. From this viewpoint, gold is not a risk asset.
Is it still a good time to buy gold?
"If the primary intention is safe-haven allocation, ordinary investors are suitable to increase their holdings of gold-related assets modestly, particularly physical gold, paper gold directly tracking gold prices, and ETFs. However, it is advised that such investors avoid using leverage on gold-related assets, as this contradicts the original purpose and exceeds their risk tolerance," Tang advised.
Xu Wenyu pointed out that in the long run, a debt-based economy tends to become increasingly unstable after repeated cycles of repair. Therefore, for ordinary investors, allocating a certain proportion of gold (especially physical gold) within an investment portfolio is always a viable strategy. As for jewelry, which carries more consumer attributes, investors can choose based on personal needs.
Wang Hongying believes that since the short- to medium-term structural factors affecting gold prices persist—such as significantly reduced expectations for Fed rate cuts and an increased likelihood of neutral monetary policy due to inflation levels—gold remains in a technical adjustment phase. Therefore, investors with different profiles should approach from a risk-aversion perspective; the recent period is not an optimal time to buy gold, and a wait-and-see approach is recommended.
"In terms of investment product selection, ETF products are the preferred choice. They have smaller investment amounts or units, making them suitable for ordinary investors, and their fees are relatively low. Gold bars also hold investment value, but their secondary market sales often involve significant discounts, which can impact investment returns. Jewelry combines both consumption and investment attributes, with consumption attributes being stronger and premiums higher, making it unsuitable as a primary investment tool. Investors should choose gold products that suit them based on whether they prioritize investment attributes, consumption attributes, or a balance of both," Wang concluded.
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