Recent market turbulence fueled by AI-driven volatility has boosted demand for traditional safe-haven assets, with one notable exception: gold. While the S&P 500 and Nasdaq have retreated from record highs, investors have turned to US Treasuries, the dollar, the Swiss franc, and the Japanese yen for protection. However, gold has failed to attract buyers, slipping below $4,000 an ounce on Friday, its lowest level in a year.
The decline in gold prices comes despite a backdrop that typically favors the metal, including falling stock prices, widening credit spreads, and lower bond yields. Even the struggles of bitcoin, dubbed 'digital gold,' and the recent $6.3 billion cyberattack on crypto exchange Binance have not provided gold with any meaningful support. The ongoing US-Iran war has also failed to boost gold's safe-haven appeal.
Central banks have increased their gold purchases, with third-quarter buying rising 42% to 321 metric tons, the highest since the fourth quarter of 2024. However, an International Monetary Fund paper suggests that gold is not a reliable hedge against equity market volatility. Instead, gold often trades like a speculative asset, with its correlation to equities turning positive and strengthening.
Gold has experienced significant volatility over the past two years, surging 65% last year before losing around a quarter of its value since the start of the US-Iran war. It is now down 9% year-to-date, making it the worst performer among major asset classes. While gold is highly oversold, a rebound may not come from further stock market turbulence, as investors are more likely to sell gold to meet liquidity needs.