Gold Becomes More Useful as a Piggy Bank Than a Haven

Gold's reputation as the ultimate store of value has been tarnished by its 15% decline since the Iran conflict began. It's failed to act as a haven or a geopolitical hedge. However, that’s not unusual — the pattern seen this month mirrors similar price corrections during the 2008 global financial crisis and when Covid struck in March 2020. After all, gold is easy to sell and many holders will be able to reap large profits: Despite the recent drop, it's still up by more than 50% in the past year.

One new market dynamic, though, is that central banks, the biggest gold buyers over the past four years, are starting to contemplate using some of their holdings to pay for vastly increased energy and defense expenditure. The sharp rise in energy prices has certainly hit some resource-poor countries hard and, with petrol rationing already becoming a feature in several countries, it must be tempting to raid the piggy bank. Central bankers are the custodians of national wealth, with reserves management one of their principal tasks; taking some of the profit from gold’s better than 150% gain during the past five years to meet emergency needs makes sense.