What does the record price of gold tell us about risk perceptions in financial markets?

Prepared by Maurizio Michael Habib, Oscar Schwartz Blicke, Emilio Siciliano and Jonas Wendelborn

Gold prices have seen an unprecedented surge since 2023, reaching a series of all-time highs. Gold has a long history as a store of value. Given its limited industrial use, demand for gold comes traditionally from retail customers (e.g. for jewellery), although it is also employed as an investment asset and used by central banks as a reserve asset.^[1] From an investment perspective, gold differs from other asset classes. Unlike most bonds and equities, it does not provide cash flow.^[2] Instead, its appeal reflects two unique features, particularly in times of high uncertainty. First, it is not a liability of any counterparty and thus carries no default risk. Second, given its limited and relatively inelastic supply, it retains its intrinsic value and cannot be debased. Accordingly, gold is often seen as a portfolio diversifier, a hedge against inflation and US dollar depreciation, and a safe haven^[3] in times of severe financial market or geopolitical stress.^[4] Against this backdrop, this box analyses gold’s performance during episodes of stress as well as developments in gold derivatives markets, the aim being to assess risk perceptions and gauge the implications for financial stability.

Gold generally offers a safe haven in times of stress, particularly during episodes of high geopolitical risk or policy uncertainty. A comparison of average returns from global equities, gold, US Treasuries and the US dollar over the last three decades shows that gold performs well during episodes of stress (Chart A, panel a). Gold prices tend to rise during episodes of elevated geopolitical risk while stock and bond prices tend to fall. For example, over the past three years central banks, especially those from emerging market economies, have increasingly purchased gold, most likely to insulate themselves from the effects of geopolitical tensions or potential sanctions (Chart A, panel b).^[5] During periods of greater economic policy uncertainty, gold outperforms equities and the US dollar, whereas bond prices generally decrease. Also, in times of extreme stock market volatility, gold provides a relatively good hedge against abruptly falling stocks.^[6] Finally, in extreme cases, when investors face elevated geopolitical risks, stock market volatility and policy uncertainty at the same time (such as during the 9/11 terror attacks, the onset of the COVID-19 pandemic or the Russian invasion of Ukraine), gold prices tend to rise alongside the value of the US dollar, while stock and bond prices decline markedly. Overall, this confirms that gold is a safe haven during times of stress in financial markets or elevated geopolitical or policy uncertainty.

Chart A

Gold prices have surged as gold acts as a hedge against geopolitical risks and policy uncertainty

a) Performance of different asset classes during stress episodes	b) Gold price and gold purchases by central banks
(Jan. 1997-Mar. 2025, Sharpe ratios)	(Q1 2010-Q1 2025; left-hand scale: USD/oz, right-hand scale: tonnes)

Recent developments in gold futures markets such as COMEX, particularly in futures contracts with physical delivery, confirm the close correlation between elevated policy uncertainty and the price of gold.^[7] Policy uncertainty, especially that related to global trade arrangements, has spiked since the US presidential election of November 2024 (Chart B, panel a). According to surveys conducted in February and March 2025, 58% of asset managers would expect gold to be the best-performing asset class in a full-blown trade war scenario.^[8] Against this backdrop, COMEX vaults saw significant increases in gold inventories, while the number of gold futures contracts noticed for delivery has been historically high in 2025, January 2025 delivery notices being the highest since July 2007. (Chart B, panel a). The preference shown by COMEX participants towards acquiring physical gold through the futures market indicates that investors are favouring long positions in physical gold over non-physically settled contracts. These long positions are likely to benefit from gold’s reputation as a safe haven during a period of high economic and trade policy uncertainty.

Trade policy uncertainty and increased demand for gold has led to higher gold borrowing costs and gold futures prices. Prior to the US tariff announcement on 2 April this year, worries about gold being subject to sweeping import tariffs and higher prices on the futures exchange in New York than in the cash market in London reportedly led to gold held in London being shipped to New York.^[9] As a result, the costs of borrowing and sourcing gold in the London market increased.^[10] Sudden market stress^[11] and disruptions to sourcing, shipping and delivering physical gold in derivatives contracts raise the question of whether counterparties obliged to deliver physical gold could be at risk of incurring increased margin calls and suffering losses. This has been seen in other non-energy commodity markets in the past.^[12]

Chart B

Recent developments in the COMEX market confirm the correlation between gold prices and uncertainty, as investors increase their demand for physical gold through the derivatives market

a) COMEX 100 gold futures contracts noticed for delivery, COMEX gold inventories and the EPU	b) Gold derivatives and gold ETF exposures, by counterparty sector
(Jan. 2020-Apr. 2025; left-hand scale: millions of troy ounces, right-hand scale: thousands of contracts)	(left graph: 31 Mar. 2025, right graph: Q4 2024, percentages)

Euro area investors are exposed to gold through derivatives, pointing to large foreign counterparty exposures. In the euro area, gross notional exposures to gold derivatives amounted to €1 trillion in March 2025, an increase of 58% since November 2024.^[13] A significant share of these derivatives contracts are traded over-the-counter (OTC) and are not centrally cleared. Approximately 48% of gold derivatives contracts have a bank counterparty (Chart B, panel b). The majority of euro area banks’ gold derivatives exposures are with non-euro area domiciled counterparties, suggesting some exposure to external shocks in the gold market. By contrast, exposures in the euro area to gold through exchange-traded funds (ETFs) amounted to €50 billion in the fourth quarter of 2024 and were rather small compared with counterparties’ total financial assets. Gold ETFs were held predominantly by households and investment funds.

Gold markets appear to partly reflect elevated geopolitical risk and substantial economic policy uncertainty, with tail scenarios potentially having adverse effects on financial stability. While gold prices are driven by many factors, investors showed high demand for gold as a safe haven asset and, at the beginning of 2025, a notable preference for gold futures contracts to be settled physically. These dynamics hint at investors’ expectations that geopolitical risks and policy uncertainty could remain elevated or even intensify in the foreseeable future. Should extreme events materialise, there could be adverse effects on financial stability arising from gold markets. This could occur even though the aggregate exposure of the euro area financial sector appears limited compared with other asset classes, given that commodity markets exhibit a number of vulnerabilities.^[14] Such vulnerabilities have arisen because commodity markets tend to be concentrated among a few large firms, often involve leverage and have a high degree of opacity deriving from the use of OTC derivatives. Margin calls and the unwinding of leveraged positions could lead to liquidity stress among market participants, potentially propagating the shock through the wider financial system. Additionally, disruptions in the physical gold market could increase the risk of a squeeze. In this case, market participants could be subject to significant margin calls and/or have trouble sourcing and transporting appropriate physical gold for delivery in derivatives contracts, leaving themselves exposed to potentially large losses.