Gold Is No Longer a Safe Haven

Gold ended 2025 with an almost 65% gain, recording around fifty new all‑time highs over the year. In January 2026, the price reached $5,589 per ounce amid the Iranian crisis and the peak of the “debasement trade” narrative. It seemed like a textbook scenario: geopolitics, inflation, a weak dollar – and gold as the primary beneficiary.

But that’s precisely when something broke. Robin J. Brooks (Former Chief Economist at IIF and Chief FX Strategist at Goldman Sachs), a Brookings Institution analyst and former chief economist of the IIF, identified a troubling shift: with the start of the US-Iran war, gold stopped behaving like a defensive asset. It falls when market anxiety rises and rallies on news of peace negotiations. Its correlation with the S&P 500 has climbed to levels typical of risk assets – silver and even bitcoin.

“Gold is trading like a high‑beta asset, not a safe haven. When risk aversion rises, it falls. When rumors of a peace deal emerge, it rallies. This is not what a defensive asset is supposed to do.”

Robin J. Brooks, economist, June 2026

Correlation with the S&P 500: Gold Behaves Like Bitcoin

Brooks’s argument is based on an analysis of daily return correlations between gold, silver, platinum, and bitcoin versus the S&P 500. Historically, gold’s correlation was close to zero: it did not react to equity‑market swings, which made it a valuable diversification tool. The picture changed gradually.

It is particularly noteworthy that gold’s correlation with the S&P 500 today is comparable to that of silver and bitcoin – assets traditionally considered far more cyclical. This represents a structural break that no longer fits conventional portfolio‑diversification models.

Three Reasons Behind the Shift in Gold’s Behavior

1. The “Debasement Trade” attracted nervous investors

The narrative of fiat‑currency devaluation – rising government debt, widening fiscal deficits, and threats to the Fed’s independence – became the main driver of the 2025 rally. The logic was simple: if the dollar depreciates, gold appreciates. This drew in a massive wave of retail investors and hedge funds that previously had little exposure to precious metals. In January 2026, inflows into gold ETFs reached a record $19 billion in a single month, pushing total fund assets to $669 billion.

Brooks argues that this new investor base turned out to be the weak link. Retail buyers drawn by the growth narrative are far more cautious than traditional holders of gold – central banks and institutional funds. At the first signs of panic, they are the first to sell.

Key takeaway

“The popularity of the debasement trade has expanded gold’s investor base to the point where its pro‑cyclical behavior may become the new normal.”

Robin J. Brooks, June 2026

2. Decoupling from the real Interest Rates

The second structural break emerged even earlier: gold’s price stopped tracking real Treasury yields. Traditionally, gold – a zero‑coupon asset – is inversely correlated with the real yield on 10‑year US Treasuries. The logic is straightforward: the higher real rates rise, the more expensive it becomes to “park” capital in gold, which does not generate interest income.

However, since 2022, real yields have been rising steadily, while gold has shown no intention of falling. This divergence is even more fundamental in nature.

Several analysts link this shift to sanctions against Russia and the desire of central banks to diversify their reserves. Morgan Stanley notes that real rates remain a key driver for gold, but the rise in structural demand has created a powerful “cushion” under the price.

3. Central Banks: A revaluation effect, not a buying frenzy

In June 2026, the ECB published its report on the international role of the euro, noting that the share of gold in global central‑bank reserves had surpassed the share of U.S.‑dollar assets. This immediately triggered headlines about a “dollar abandonment” and a “flight to gold.” Brooks rejects this interpretation: the rise in gold’s share is purely a valuation effect. The value of existing gold holdings increased along with the metal’s price.

According to IMF data, actual central‑bank gold purchases in 2025 – 863 tonnes – were lower than in 2024 (1,092 tonnes) and remain in line with the long‑term trend. There is no sign of a buying panic.

Timeline: How Gold Lost Its Safe‑haven Status

What Major Banks Say about Gold: Outlook for 2026-2027

Despite the shift in gold’s behavioral profile, none of the major banks have turned bearish. The structural bullish consensus remains intact – but target prices have been significantly revised downward from the peak expectations seen earlier in the year.

Morgan Stanley emphasizes that gold’s current behavior is driven primarily by expectations for real interest rates and the energy‑price shock – both factors working against the metal’s traditional safe‑haven role in the short term. Even so, the bank still sees upside potential toward $5,200 in the second half of 2026, supported by a renewed pickup in ETF inflows.

A Temporary Anomaly or a Permanent Structural Shift?

The key question analysts are trying to answer is whether we are witnessing a temporary “contamination” of gold’s behavior by speculative capital – or a lasting transformation in the very nature of the asset. Opinions diverge.

Brooks takes an intermediate position: he remains a “believer in the debasement trade” and expects gold to rise over the long term, while acknowledging that in the short run, its pro‑cyclical behavior is a new reality the market will have to accept.

What This Means for a Retail Trader and a Broker

1. Rethink your hedging

Gold no longer functions as an automatic “umbrella” in a storm. In periods of market panic, it can fall alongside equities. Effective diversification now requires a broader set of instruments.

2. Narratives are a risk

The debasement trade brought in positional investors far removed from fundamentals. A popular narrative = hidden liquidity that can quickly turn into a sharp sell‑off.

3. The dollar is back

While gold has been losing its safe‑haven status, the U.S. dollar (DXY) has behaved classically – strengthening as risk rises. FX traders should account for this reversal in correlation models.

4. Watch real rates

Expectations of Fed cuts in 2027 are the key catalyst for gold’s next leg higher. Morgan Stanley links the potential XAU rebound directly to real‑rate dynamics. This is the primary variable for medium‑term positioning.

5. Don’t confuse valuation with central‑bank buying

The rising share of gold in central‑bank reserves is a valuation effect, not a buying frenzy. Myths about “de‑dollarization” distort market expectations and can generate false trading signals.

6. The long‑term bull trend is intact

Banks unanimously maintain targets of $5,400-6,200 over a 12-18‑month horizon. A correction to $4,300-4,500 is not the end of the trend but, in Goldman’s words, a “cleansing of speculative froth.”

“Gold remains an inflation hedge. It’s just that now it is a high‑beta inflation hedge. Those are not the same thing.”

Robin J. Brooks, Substack, June 2026