Amid the chaos of tariffs and global tensions, gold seems like a safe haven. But what if the real risk isn’t war, but the economy itself?
The logic is simple: Trump rattles the stock market with tariffs, Beijing responds by threatening rare earths, and in the middle, a bewildered investor, stunned by the P/E multiples of AI-related stocks trading at their highest since the dot-com bubble, thinks, "Gold will save me." He sells everything, buys gold. End of story, right?
Not exactly. Are we so sure that there’s a direct cause-and-effect relationship between the gold price rally and the geopolitical tension of recent weeks? In my opinion, no. Or rather, not as linearly as many think. But let’s proceed in order.
The historical role of gold as a hedge
To understand the present, we need to go back to the basics. Gold has always been perceived as a safe-haven asset, capable of protecting portfolios during market drawdowns or periods of elevated geopolitical risk.
Historically, gold tends to exhibit a negative correlation with risky assets: when stock markets crash, the yellow metal often rises. This is an empirical relationship, observed in times of financial stress, such as the 2008 crisis or the pandemic panic of 2020.
This hedging effect isn’t just triggered by fear: even in modern portfolio management, gold helps reduce overall volatility, improving the portfolio’s risk–reward profile. A classic example of how imperfectly correlated diversification can generate long-term value.
When Gold Stops Protecting
Yet—and this is where many investors are mistaken—gold doesn’t always work. In 2022, for example, during the worst inflation spike in the last forty years, one would have expected a strong rally. But no: gold remained flat, and at times even lost ground.
Why?
Because the gold-inflation correlation is not constant. Gold is not an automatic hedge against rising prices, but rather against a loss of confidence in the monetary system. When the Federal Reserve raises rates and strengthens the dollar, as in 2022, the opportunity cost of holding gold (which yields no income) increases. The result is downward pressure on the price of the metal, regardless of the level of consumer prices.
So, not only is gold not always a good hedge against inflation, but it’s not even a good hedge against all market declines. Its protective function emerges clearly only in conditions of financial stress or monetary uncertainty, not in simple periods of economic adjustment.
Geopolitics or macroeconomics?
Let’s get to today. Many think that the gold rally of recent weeks is a direct reflection of the tension between Washington and Beijing, or the escalations in the Middle East. It’s a convenient, linear, and seemingly logical narrative.
But looking at capital flows and gold ETF inflows, something doesn’t add up: the inflows into gold began well before the latest geopolitical events. The market, as often happens, anticipated.
In my opinion, institutional investors weren’t positioning for the risk of war, but rather against the risk of economic stagnation stemming precisely from Trump’s protectionist policies and the deterioration of trade relations with China.
In other words: yes, the risk stems from a geopolitical dispute, but the real impact is economic.
A cold war, but a financial one. Missiles aren’t exploding: import prices are surging. And if tariffs rise, supply chains contract, and global growth slows, then gold rises not out of fear of war, but out of fear of stagflation.
Timing is everything
And here’s the most important point: the market anticipates, it doesn’t react.
When an investor today sells stocks and bonds to buy gold, he risks doing so at the wrong time. Not because gold can’t rise further, but because the main movement may have already been priced in by the most sophisticated traders, who picked up on the signals weeks ago.
The ETF flows into gold, data on COMEX futures, and COT (Commitment of Traders) positioning show an increase in speculative positions even before the return of tariffs. In other words: the market had already priced in the end of the trade truce.
And this is a classic behavioral error: mistaking the news for an investment signal, when in reality the price has already reacted to expectations.
What all this teaches us
The point is not that gold is useless, or that it’s a bad choice.
But thinking that geopolitical tension alone is enough to justify a significant increase in positions is a dangerous simplification. The risk today is not war itself, but the economic fallout of these tensions: inflation, more fragile global chains, slowing productivity, and uneven growth across economies.
The real paradox is that gold, precisely at a time when it seems the most intuitive response, could represent an inefficient hedge against the hybrid geopolitical and macroeconomic nature of today’s risks.
So?
This just goes to show how often the way we read markets depends more on the frame with which we interpret events than on the facts themselves.
Yes, gold remains an excellent hedge. But not every time the world trembles. Its behavior is more subtle, more influenced by expectations than by fears.
Perhaps, in hindsight, those who buy gold today will be right. But a priori, the choice seems more emotional than logical.
Original article published on Money.it Italy 2025-10-13 13:13:26. Original title: La verità è che il prezzo dell’oro sta ingannando tutti
