Gold's traditional safe-haven role is facing unprecedented challenges as the metal's price action now moves closely with risk assets such as Bitcoin and the S&P 500. According to economist Robin Brooks, gold has lost part of its safe-haven role as its equity correlation rises, with gold's correlation with U.S. equities now above 0.50 in recent months. This represents a dramatic shift from gold's historical behavior, when it maintained a correlation near zero with the S&P 500 while Bitcoin's long-term correlation with equities usually stayed below 0.15. During the late 2025 and early 2026 debasement trade, Brooks noted that Bitcoin's equity correlation climbed as high as 0.55, with gold now matching Bitcoin's correlation with the S&P 500 - a setup he described as unusual for an asset long treated as a shelter during geopolitical or economic stress.
Gold has achieved a landmark milestone in global financial markets, surpassing US government bonds as the leading reserve asset for the first time. According to reports from The Financial Express, central banks now hold 27% of their total official foreign reserves in gold as of the end of 2025, compared to 22% in US Treasuries and 15% in euros. This represents a dramatic shift from just a few years ago, when such a scenario would have seemed unthinkable. The surge has been driven by massive central bank purchases and a price rally that nearly doubled gold's value over just two years, with prices rising by 60% in 2025 and 30% in 2024. As reported by Metals Focus, gold is now trading at $4,480 per ounce, with the consultancy forecasting an average price of $4,920 per ounce for full-year 2026.
A historic demand shift is underway as physical investment overtakes jewelry for the first time on record. According to Metals Focus, physical investment is expected to rise 15% in 2026 to its highest level since 2013, while jewelry demand is forecast to fall by double digits. High prices are pricing out consumers in several key markets, with regions where elevated oil prices are squeezing disposable incomes experiencing amplified declines. This behavioral change reflects a shift where consumers who might have bought jewelry instead move toward bars and coins, treating gold as a financial asset rather than an adornment. The net result: for the first time in Metals Focus data, investment demand overtakes jewelry as gold's largest demand category.
Brooks linked the change in gold's behavior to the sharp gold rally over the past year and the arrival of new retail buyers. He said the price increase mechanically lifted the value of gold on central bank balance sheets, but rejected the idea that institutions had suddenly rushed into bullion or abandoned the U.S. dollar. According to Brooks, heavy promotion of the debasement trade in late 2025 brought many retail investors into gold, with these buyers tend to react more quickly to market stress than older bullion holders. He said he first expected the high equity correlation to fade after corrections pushed short-term traders out of the market, but now believes gold's trading structure has changed more deeply. The economist noted that gold now falls with equities when investors reduce exposure to risk, behavior that works against the basic purpose of a safe-haven asset.
China is leading the shift toward physical investment, with gold priced in Chinese yuan approaching the technically significant RMB 30,000 per ounce level. The People's Bank of China removed approximately RMB 1.8 trillion in market liquidity during the 12 weeks following its March 2 peak injection, representing a withdrawal of about 4.5% of injected liquidity. As reported by the World Gold Council, China was the fourth-largest per-country buyer of gold in 2025 after Poland, Kazakhstan and Brazil, purchasing approximately 25 tonnes. The world's second-largest economy has bought more than 350 tonnes of gold since early 2022, more than any other country, as reported by the ECB.
Despite the dramatic price increases, central banks continue purchasing gold at historically high levels. According to The Financial Express, while purchases decreased to approximately 850 tonnes in 2025 from over 1,000 tonnes annually between 2022 and 2024, they remain well above historical norms. The ECB notes that survey data suggests central banks hold gold not only for diversification but also as a hedge against geopolitical risk, with central banks in higher external conflict risk regions tending to have larger gold purchases. The shift reflects a systematic diversification away from dollar-denominated reserves rather than inflation fear, with official sector demand providing a structural floor under prices that operates largely independent of short-term price moves or Fed rate decisions.
