This article first appeared on GuruFocus.
Gold’s (GLD) role as a reliable safe haven is being questioned as prices have declined about 15% since the Iran conflict began, a move that may seem counterintuitive during geopolitical stress. However, the recent pattern broadly mirrors prior episodes, including the 2008 global financial crisis and the sharp market dislocation in March 2020, when investors turned to gold as a source of liquidity rather than protection. Despite the pullback, gold remains up more than 50% over the past year, which could leave many holders sitting on gains and potentially more willing to sell into periods of stress.
A more structural shift may be emerging from central banks, which have been the largest buyers of gold over the past four years but are now beginning to reassess their positioning. With energy prices rising and defense spending increasing, some policymakers could be considering whether to draw on gold reserves to meet funding needs. According to the World Gold Council, central banks hold more than $4.3 trillion in gold, representing about a fifth of the market, roughly double their historical share. Accumulation accelerated following the 2022 invasion of Ukraine as countries diversified away from dollar-based assets after the West froze up to $330 billion of Russia’s reserves, though recent data suggests buying has slowed significantly, with just five net metric tons purchased in January versus a monthly average of 27 tons last year.
Early signs of this shift are starting to appear across markets. Russia has been the largest seller of gold this year, possibly to support the ruble, while Poland’s central bank has raised the possibility of selling part of its holdings and Turkey may consider using gold as collateral to stabilize its currency. Additional countries in the Middle East and Asia are also being discussed as potential sellers. Taken together, these developments could point toward a more balanced two-way market, where renewed buying at lower prices meets intermittent selling driven by fiscal pressures, suggesting gold may increasingly act as a liquidity tool in times of stress rather than a one-directional hedge.