Inflation heats up, central banks turn hawkish! Is the wind changing for gold prices?

華夏基金香港

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Gold prices have fallen—does that mean its safe-haven appeal has 'failed'? Three misconceptions you might all be falling for

Recently, gold prices have been on a 'rollercoaster,' leaving many investors puzzled: 'Isn’t gold supposed to be a safe haven? Why does it fall when risks emerge?'

To answer this question, we must first clarify a key concept—what kind of risk does gold actually hedge against?

Misconception #1: Treating gold as a 'universal safe-haven shield'

Many investors believe that whenever there’s market turmoil—geopolitical conflicts, sharp stock market declines, or economic data falling short of expectations—gold should rise.

But the reality is far more complex.

A more essential understanding is this: gold hedges against 'major risks,' not necessarily 'minor risks.'

• Risks it is relatively better equipped to handle: sovereign credit risk (e.g., weakening U.S. dollar credibility), runaway inflation, and medium- to long-term uncertainty triggered by geopolitical conflicts.

• Risks it may not effectively hedge against: liquidity dry-ups (when market panic drives a universal need for cash) and deflation (when cash becomes relatively more attractive in terms of purchasing power).

When markets experience sharp volatility, many investors’ first instinct is often not to 'reallocate' but to 'find an exit.' Gold, with its relatively strong liquidity and ease of conversion into cash, may paradoxically become an asset that’s preferentially sold off in certain moments.

As Wang Lixin, CEO of the China region at the World Gold Council, recently remarked in an interview: 'Gold hasn’t changed—what’s changed is the market.'

—It’s not that gold’s safe-haven attribute has 'failed'; rather, in certain extreme environments, it has taken on a new role: as a liquidity exit.

Misconception #2: Trading gold with a stock-trading mindset

One core principle of equity investing is earnings growth, whereas physical gold itself generates no cash flow. Treating physical gold as a short-term trading instrument can erode returns through frequent trading and may lead investors to chase rallies at emotional highs or sell at panic-driven lows.

Research from the World Gold Council offers a noteworthy perspective: gold’s volatility has a 'half-life' of approximately 1.6 months. This means that even if gold prices experience significant short-term swings, historical data suggests such extreme conditions tend to naturally moderate over time.

For ordinary investors, excessively focusing on daily price movements offers relatively limited value; over a longer time horizon, emotionally driven volatility may be smoothed out by time.

Moreover, since the start of 2026, gold prices have exhibited a 'pirate ship'-style ride—surging above $5,600 early in the year before retreating to trade within the $4,400–$4,700 range following a May correction. This precisely illustrates that short-term prices are influenced by a confluence of factors—including interest rate expectations, geopolitical developments, and market sentiment—and cannot necessarily be attributed solely to a fundamental shift in gold’s long-term fundamentals.

(Source: The LBMA Gold AM Price, May 19, 2026)

Misconception #3: Over-concentrating positions in hopes of 'getting rich overnight'

In an investment portfolio, gold functions more like a 'stabilizer' than an 'engine.'

A vivid analogy is this: gold is like a defender on a soccer team—its primary role isn’t to score goals frequently, but to ensure the defensive line doesn’t collapse when other positions falter.

From an asset allocation perspective, according to the World Gold Council’s report on gold’s impact on investment portfolios:

• For balanced investors, maintaining a gold allocation between 5% and 10% may help optimize the risk-return profile of the portfolio;

• Investors with relatively higher risk tolerance may also consider slightly higher allocations, though they should be mindful that excessive exposure could amplify volatility’s impact on the overall portfolio;

• If the allocation is too low, gold may struggle to fulfill its potential role as a hedging tool.

The optimal allocation ratio for gold varies depending on the risk profile of an investment portfolio.

Source: Bloomberg, ICE Benchmark Administration, Portfolio Visualizer, World Gold Council, February 4, 2026

In other words, gold has never been about 'making you rich overnight,' but rather about 'ensuring you aren’t overly vulnerable during extreme market conditions.'

Another common point of confusion is whether gold’s safe-haven attribute has 'failed.'

This question resurfaces repeatedly whenever gold prices experience short-term declines.

A useful distinction to make is this: short-term price fluctuations largely reflect sentiment 'voting' in the market, while long-term position changes may reflect strategic judgments being 'placed on the board.'

Observing who is buying and who is selling can sometimes bring us closer to the essence of the issue than fixating on short-term price movements.

Since the beginning of 2026, despite significant gold price volatility, the People's Bank of China has continued to increase its gold holdings. As of the end of April 2026, China’s central bank had raised its gold reserves for 18 consecutive months, adding 260,000 troy ounces (approximately 8.09 metric tons) in April alone, with the pace of purchases accelerating month by month. Meanwhile, global central banks added 244 metric tons of gold to their reserves in Q1 2026, exceeding the same period last year.

Of course, some central banks have temporarily reduced gold holdings due to short-term fiscal or energy pressures (e.g., Turkey and Russia). However, aggregated global data shows that the overall trend of net gold purchases remains intact. According to a World Gold Council survey, over 95% of central banks plan to continue increasing or maintaining their gold reserves in 2026.

What does this indicate? Gold’s safe-haven function hasn’t 'disappeared'—it’s simply manifesting differently across investor groups, shifting from short-term traders’ screens back into sovereign nations’ long-term balance sheets.

Summary

Gold investing isn't necessarily about who can best predict short-term price movements, but rather about the patience to understand the logic behind asset allocation.

If you're feeling anxious about gold prices fluctuating daily, consider asking yourself two questions first:

1. Why am I buying gold?

— Is it for short-term price speculation, or as part of a long-term asset allocation strategy?

2. Does my current position allow me to sleep soundly at night?

— If the answer is no, you might need to consider adjusting your position—not making hasty decisions driven by market euphoria or panic.

The true value of gold has never been solely about price gains or losses. It represents a hedge against credit risk and provides a margin of safety amid uncertainty.

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Data source:

1. “Investment Matters | Gold Prices on a 'Pirate Ship,' Safe-Haven Failure, or Central Bank Buying Spree?” China National Radio, May 15, 2026, Website: https://www.sohu.com/a/1023037285_362042

2. World Gold Council, “Global Gold Demand Trends Report” (Full Year 2025 and Q1 2026), World Gold Council Official Website, Website: https://china.gold.org

3. “Foreign Exchange Reserves Rebound to $3.4 Trillion in April! Central Bank Marks 18th Consecutive Month of Gold Purchases,” Securities Times Online, May 7, 2026, Website: https://www.stcn.com/article/detail/3898541.html

4. "Report Shows: Global Central Banks Added 244 Tonnes of Gold Reserves in Q1, Up 3% Year-on-Year," People.cn Finance, April 30, 2026

Website: https://finance.people.com.cn/n1/2026/0430/c1004-40712060.html

5. LBMA Gold Price Data, Benchmark Administration of Intercontinental Exchange

Website: LBMA Precious Metal Prices | LBMA

6. The Strategic Investment Value of Gold: 2026 Edition, February 4, 2026, https://china.gold.org/goldhub/research/publication/2026/02/04/19500/19527

Risk Warning: Gold prices are influenced by multiple factors including international geopolitical developments, monetary policy, and market sentiment. Past performance does not indicate future results. The content of this article is for reference only and does not constitute investment advice. Investors should make prudent investment decisions based on their own risk tolerance.

Investing involves risks, including the possible loss of principal. Any forecasts, outlooks, or opinions contained herein are for your reference only and are not guaranteed to materialize. The information in this document reflects market conditions and our views as of the date of publication and is subject to change without notice. This material is issued by China AMC (Hong Kong) Limited. This document has not been reviewed by the Securities and Futures Commission of Hong Kong.

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