Continuous sharp decline: has gold lost its effectiveness as a safe haven in turbulent times?

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Source: Beijing Business Today

When the Strait of Hormuz “blocks,” the so-called “ultimate safe haven,” gold, not only fails to surge but instead experiences a sharp “dive,” with spot gold falling below $4,500, dropping over 10% in a week. The price correction has directly ignited demand for both essential consumption and bottom-fishing investments. On March 22, Beijing Business Today reporters found bustling offline gold shops, with crowds seeking wedding jewelry, zodiac year gifts, and holiday presents—long-term value investors are taking the opportunity to buy the dip, with sales of gold bars and jewelry soaring. Meanwhile, the international gold price is behaving abnormally, deepening market confusion: why has gold’s safe-haven property failed amid escalating geopolitical conflicts? Can the “bull market” myth of gold still hold?

Why Safe-Haven Assets Are “Failing”

“The chaos of buying gold,” a long-standing investment adage, has become a common consensus among ordinary investors facing uncertainty. Historically, geopolitical conflicts have always been key catalysts for rising gold prices. After the Russia-Ukraine conflict erupted, gold prices surged rapidly within two weeks; previously, tensions in the Middle East also often boosted gold as a safe haven, attracting funds to hedge against uncertainty. However, as the scope of conflicts expanded and the Strait of Hormuz shipping disruptions worsened, gold prices unexpectedly turned downward, entering a continuous decline. On March 19, spot gold “dove,” breaking below $4,800, and the decline persisted the next day; on March 20, it fell through $4,500 during trading, closing at $4,491.67 per ounce, down over 10% for the week. COMEX gold also broke below $4,500, closing at $4,492 per ounce.

While geopolitical tensions continue, gold prices keep falling—this abnormal trend has shattered market expectations and left many investors puzzled. As a traditional safe-haven asset, why has gold “failed”? Based on various market perspectives, the “failure” of gold’s safe-haven property reflects a change in the main trading theme of the market.

Wang Hongying, President of the China (Hong Kong) Financial Derivatives Investment Research Institute, said that the sharp decline in gold prices is primarily due to a significant shift in market expectations of Federal Reserve monetary policy. On one hand, the stalemate in Middle Eastern geopolitics has driven oil prices sharply higher, coupled with the February US CPI (Consumer Price Index) hitting a new high since last year and the lagging effects of high tariffs, causing market concerns that March CPI may still rise. Against this backdrop, the Fed has prudently paused interest rate cuts. On the other hand, the US dollar index has surged past 100, exerting strong pressure on precious and base metals, compounded by profit-taking by long positions, all contributing to the rapid decline in gold prices.

Additionally, changes in the capital structure of the gold market have amplified the decline. Wu Zewei, a special researcher at Sichuan Commercial Bank, noted that although gold has fallen sharply, it remains one of the better-performing assets this year. Compared to the three major US stock indexes, which have all fallen more than 3%, gold has at least maintained positive gains year-to-date, making it a relatively profitable or less risky asset for institutions. When forced to meet margin calls or cash needs, they tend to sell the most liquid and profitable assets first, with gold naturally being a prime target. Moreover, trading behaviors of quantitative strategies and options traders may also accelerate downward momentum. Sharp price drops can trigger stop-loss signals in quantitative trading systems, leading to automated sell-offs; simultaneously, options traders may face “gamma squeeze” risks.

Brick-and-Mortar Gold and Jewelry Sales Booming

The decline in international gold prices has led domestic gold prices to retreat, offering buying opportunities for consumers. On March 22, Beijing Business Today reporters visited Caibai Jewelry headquarters. That day, the price of pure gold jewelry was 1,448 yuan per gram, 999 fine gold was 1,450 yuan per gram, and gold ornaments were 1,462 yuan per gram—prices that have already fallen compared to early March.

The investment gold bar section was also bustling, with many visitors consulting and purchasing. The digital display showed recent fluctuations in international gold prices; on March 22, Caibai’s basic investment gold price was 1,010 yuan per gram, down from around 1,200 yuan earlier in March.

68-year-old Liu Dazui, a regular in the gold investment section, told Beijing Business Today, “In 2024, I bought a lot of gold, and by 2025, the price doubled. I caught a good trend. Over the past year, I sold more than 600 grams, making a profit of 690,000 yuan. The gold price has recently fallen back, and some of my profits have been realized, but I’m not worried.” He smiled and waved his order, saying he bought another 300 grams on the dip, planning to hold and wait for a better opportunity to sell.

Another newcomer, Aunt Wang, also came to buy the dip. She had only purchased jewelry like earrings before and had never invested in gold bars. She said she saw recent gold price declines and thought it was a good time to buy, so she came to look. Lacking investment experience, she was unsure how many grams to buy among different options.

Investors Should Avoid Risks and Maintain Steady Strategies

Amidst the sharp fluctuations in gold prices, some choose to take profits and exit, while others seize the opportunity to buy the dip. Facing such volatility, different investors need to adjust strategies and avoid risks—this is the most urgent issue. For those with immediate consumption needs, their primary goal is not to profit from price swings but to meet practical needs like wedding jewelry, holiday gifts, or daily wear, so short-term price fluctuations have limited impact. In contrast, investment-focused investors aim for returns, requiring them to adjust strategies based on market trends, with the core principle of avoiding blindly following the crowd and maintaining rational planning.

Wang Hongying suggested that the short-term adjustment in gold may continue for 2–3 weeks, with the trend in April mainly depending on developments in the Middle East, likely fluctuating between $4,400 and $4,600 per ounce to form a bottom. Investors should mainly buy on dips in stages and avoid full positions or leverage. They should also pay attention to the valuation of these assets versus market liquidity bubbles, as high volatility and overall liquidity risks are present. Avoid full leverage chasing highs.

Wu Zewei added that, from current levels, gold’s allocation value is relatively high, with manageable downside risks and considerable upside potential. The process of de-dollarization has strong resilience and is unlikely to reverse easily. Central banks worldwide are expected to continue increasing gold holdings gradually. Investors should closely monitor gold trends. When signs of stabilization appear, they can use pyramid strategies near support levels. Wu recommended Livermore’s pyramid method: first, establish a 20% position when gold breaks key levels; second, verify: if prices fall below key levels, stop-loss immediately; if prices rise and generate profits, proceed to the third step. Third, wait for a pullback and a new high to add 15%; if a third breakout occurs, add another 10%. Repeat to form a pyramid with a large base and small peaks, minimizing costs and expanding profits as the trend develops.

Beijing Business Today Reporter: Song Yitong