Should investors rethink gold’s safe-haven status?

Gold is increasingly showing a positive correlation with the S&P 500, according to researchers at the University of Stirling, who argue that its effectiveness as a hedge has therefore declined significantly.

The study, ‘The diminishing lustre: gold’s market volatility and the fading safe haven effect’, is based on historical data. This covers the relatively stable era from 1980 to 2005, when the two asset classes generally move in opposite directions, followed by the more volatile period between 2006 to 2024, which is when gold’s correlation to stocks turned positive and the researchers conclude its effectiveness as a hedge began to plummet.

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In fact, during the 2007-08 subprime mortgage crisis and the broader recession, gold performed well as a safe-haven asset, with its value rising significantly, contrasting sharply with the severe decline in global stock markets. It is only in the last five years that both gold and equities have outperformed consistently, an unusual pattern that the researchers say casts doubt on gold’s status as an effective diversifier.

It’s not hard to see why this has happened. The standout characteristics of the current economy have been the surge in mega tech stocks, which has almost single-handedly dragged up equity markets, alongside widespread geopolitical uncertainty, which has prompted central banks to buy gold at an astonishing rate, driving record gold prices throughout 2024 and 2025.

In fact, central bank buying of gold began in earnest in 2010, marking a U-turn from decades of net selling, and has been accelerating ever since, with the metal’s appeal as a reserve asset reinforced by a string of geopolitical fractures, declining confidence in dollar-denominated assets and the threat of sanctions.

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Central banks have accumulated more than 1,000 tons of gold in each of the last three years, double the 400-500 tons average over the preceding decade, according to the Central Bank Gold Reserves Survey 2025.

As for the future, 76% of the central bankers questioned for that survey believe global gold reserves will increase over the next five years, mostly at the expense of dollar holdings.

The S&P 500 and gold don’t share the same performance drivers

However, the fact that both gold and stocks have been rising in unison has little bearing on whether gold is still a valuable hedging tool, because the two asset classes don’t share the same drivers.

“The recent research article is highly empirical, and I do not mean this as a compliment,” says William Morris, head of investments at Weatherbys Private Bank. “We can draw precisely no conclusions about how gold may behave, or what its function might be in portfolios, from a backwards-looking analysis.”

Morris further argues that correlations are not a good measure of how well an asset diversifies a portfolio, seeing them as a relic from ‘Modern portfolio theory’ (1952) – Harry Markowitz’s seminal paper, which argued that risk should be defined as the variance of returns around the average.

He points out: “Since Markowitz, there have been many arguments against using the variability of returns as a measure of risk – chief among them that it does not focus on the downside. But correlations are derived from covariances. So, by looking for de-correlated assets, all one is doing is trying to smooth a portfolio’s returns.

“Instead, the most immediate and intuitive purpose of diversification is to protect against poor performance in relative terms. The regulator reminds us that diversification does not protect against loss – but it can protect us against drawing the shortest straw.

“An allocation to gold could help improve a portfolio’s resilience by avoiding the short straw, but equally it might on the other hand, itself be the shortest straw one day. It is driven by supply and demand, and its future value is therefore inherently unpredictable.”

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Of the monetary factors that impact the gold price, the metal’s sensitivity to interest rates, and perception as a store of value and inflation-hedge look supportive for its future. Interest rates are generally falling, food prices are soaring, job growth has stalled, and people are talking about stagflation, the term that describes “stagnant” growth combined with “inflation” of prices.

“The Federal Reserve is set to lower interest rates, despite inflation still around 3%, and with tariffs likely to keep prices elevated,” says Ian Samson, multi-asset portfolio manager at Fidelity International.

He continues: “The tariff hit and a slowing labour supply will lead to a weak growth environment. This mix of falling interest rates, sticky inflation, and subdued growth should all bolster gold. It should lead to a subdued US dollar, which is gold’s main competitor as a store of value.

“We have never seen this scale of uncertainty and change around tariff policy, and the effects are yet to dissipate. Gold’s status as the ultimate safe haven leaves it well placed for any further surprises. In addition, the unrelenting size of the US budget deficit raises concerns about monetary debasement, which further boosts the long-term case for gold.”

Why soaring gold price is well supported

The caveat is that, while the gold prices should continue to rise for the next few years, the climb is unlikely to be in a steady straight line. The price may have run ahead of itself and could dip in the short term, creating a buying opportunity. It is worth recalling that when the metal broke through the $2,900/oz barrier earlier this year, it had already risen 50% in the 14 months prior. Since then, gold has continued soaring, and is now trading above $4,000.

Current frothy prices do not change the mid-term outlook. One quarter of global gold production is now bought by central banks, a shift that makes gold the second-largest reserve currency, having overtaken the euro last year. China and Asia are big buyers. China, for example, extended its gold-buying streak for a 10th straight month in August.

“Gold is distinct in being scarce and independent of any government or central bank,” says Chris Mahoney, investment manager on the Jupiter Gold & Silver fund. “As Treasury Secretary Scott Bessent recently said: ‘Gold can’t run a deficit. It can’t default. It can’t go to war. It’s isolated from government failure’.”

Mahoney ran some data and found that adding between anywhere between 1% and 10% of gold to typical 60/40 portfolios outperformed a straight 60/40 portfolio of shares and bonds in 16 of the last 25 calendar years.

“As well as exhibiting lower volatility and generating higher returns, these portfolios provide investors with a unique hedge against monetary disorder not offered by other safe haven or alternative assets,” he says.

“Despite gold currently sitting at an all-time high, it could rally further given the macro backdrop. Gold will benefit from the US’ apparent intention to run the economy hot, easing monetary policy and tolerating above-target inflation for the sake of growth and employment. We expect that central banks will, in aggregate, continue to accumulate gold. With most institutional investors lacking exposure to gold, there is a lot of scope for increased participation in this bull market.”

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All this suggests that gold can be meaningfully viewed as a standalone, idiosyncratic asset with further to go. 

“Rather than a traditional safe haven, that is negatively correlated to equities, we see gold as a uncorrelated asset, meaning it tends to provide diversification in a portfolio over a full economic cycle,” says Joe Aylott, investment strategist at Coutts. “This does not mean investors can rely on gold during every period of volatility in equity markets.

“Given yields on government bonds of 4%-5% though, in the current environment we feel that bonds will do an attractive job of hedging portfolios against recession risk (i.e, yields will likely fall, causing bond prices to rally), while providing a reasonable income stream, an attribute that gold – which pays nothing – cannot compete with.”

“For the kinds of risks that government bonds do not protect against, such as stagflation or fiscal risks, we rely on our liquid alternatives allocation. In these environments, gold could perform well too.”

Currently a good way to access the metal is via mining companies, as the gold price relative to the cost of extraction has put miners in a strong position, because oil prices have fallen.

Gold’s meteoric rise could also be a portent for bitcoin, which has potential as a reserve asset with characteristics similar to gold. Everyone assigns a value to gold, but there may be a day when everyone similarly assigns a value to bitcoin once its infrastructure and networks have been developed more fully.

Routes to owning gold

Gold specialist funds or exchange-traded funds (ETFs) and exchange-traded commodites (ETCs) offer exposure to gold.

Equity-based commodity ETFs invest in shares of commodity companies, whereas ETCs are instruments that track the price of the commodity, or a basket of commodities. Both are passive, meaning they follow the up and down fortunes of an index rather than actively making decisions on which companies are best placed to gain exposure to gold. 

Two active fund options are BlackRock World Mining Trust Ord (LSE:BRWM) and Jupiter Gold & Silver. Whereas, for passive exposure, options include iShares Physical Gold ETC GBP (LSE:SGLN), WisdomTree Physical Gold GBP (LSE:PHGP) and Royal Mint Responsibly Sourced Physical Gold ETC GBP (LSE:RMAP).  

For broader exposure to commodities, WisdomTree Enhanced Commodity ETF - USD Acc GBP (LSE:WCOB) is one of interactive investor’s Super 60 investment ideas.