Gold is losing its lustre as a safe investment, research finds

The warning comes in the wake of surging gold prices and a hike in demand for the precious metal.

gold bars on business chart background
For decades, gold has been considered a safe haven.

Gold is losing its lustre as a safe investment, according to new research from the University of Stirling, published in the wake of surging gold prices and a hike in demand for the precious metal. 

For decades, gold has been considered a safe haven – that is, an asset that keeps a stable price, enhances a financial portfolio and mitigates risk - when financial markets are in turmoil. But that role has waned due to gold’s own market instability, says the study, which found that gold is acting more like stocks and shares. 

Researchers from the University of Stirling Business School and Abdullah Alsalem University of Kuwait examined the volatility of the gold market during turbulent periods, and compared it to other precious metals, bonds, and the S&P 500 Index, which lists the 500 leading publicly traded companies in the USA. 

Historic highs

They tracked gold prices and market behaviour over the 37 years from January 1987 to May 2024, covering several major financial crises: Black Monday in 1987, the early 1990s recession, the global financial crisis of 2008, and the COVID pandemic. 

Researchers found that the gold market fluctuated notably after 2005, with prices surging to historic highs and not declining as expected. By contrast, platinum showed less volatility. 

The findings come as global demand for gold increases, particularly as part of Exchange Traded Funds (ETFs), which holds multiple assets, typically bonds and equities.

man with glasses and blue shirt
David McMillan
Professor of Finance
Our findings should be a warning sign to those looking to diversify their financial portfolios by buying gold, particularly at this time of economic uncertainty, with geopolitical issues and President Trump’s import tariffs.

Professor David McMillan, Professor of Finance and Head of Accounting and Finance at Stirling Business School, said: “Our analysis found that gold started to lose its position as a safe haven during volatile periods. Platinum is the only precious metal to show a statistically significant safe haven role during extreme market shocks in the stable and volatile periods. 

“We are currently seeing that the price of gold remains high and the price of stocks are also high – which is not the pattern we would usually see. The general safe haven argument is that stocks and gold move in opposite directions, but they are moving together.” 

He added: “Our findings should be a warning sign to those looking to hedge their financial portfolios by buying gold, particularly at this time of economic uncertainty, with geopolitical issues and President Trump’s import tariffs.” 

Co-author Hussain Faraj, a former PhD student at Stirling Business School, said: “Gold exhibits a similar risk pattern to the S&P 500 index, a sign that investors are treating gold as ‘just’ another asset. Another indicator of this is that we are seeing an increase in demand through ETFs, which historically have not included gold.”

The research paper, The diminishing lustre: Gold’s market volatility and the fading safe haven effect, is published in Global Finance Journal.