Gold reigns supreme in times of crisis

ISLAMABAD

When President Donald Trump took the stage during his Liberation Day address and signalled a sharp escalation in trade tensions — reviving the spectre of broad tariffs and combative economic nationalism — global markets responded with panic. While investors have come to expect bold rhetoric from Trump, the speed and scope of the financial reaction were far beyond typical fluctuations. Within hours, US stock markets witnessed a dramatic sell-off, the dollar weakened against major currencies, and — most strikingly — US Treasuries, long regarded as the ultimate safe haven, were dumped at an alarming pace.

This time, markets didn't just wobble; they convulsed. The Dow Jones Industrial Average plunged by 3.5%, and the S&P 500 saw a 4.1% decline in a single trading session and have entered into bear market territory since then. Investors, instead of seeking refuge in US government bonds as they traditionally do during times of uncertainty, began offloading Treasuries in volumes that caused the yield on the 10-year note to spike to 4.85% recently — a level more typically associated with corporate bonds than sovereign debt.

This unusual behaviour signals a deeper shift in investor psychology. Historically, the US dollar, Wall Street, and US Treasuries have served as the global trinity of capital preservation. However, the market's synchronised retreat from all three suggests waning confidence in American Exceptionalism to provide ultimate financial and political stability. Even as the Trump administration scrambled to clarify its tariff timeline and dampen the market's reaction, the damage to investor sentiment was already done.

"The traditional hedging mechanisms broke down almost instantly," said Mohamed El-Erian, Chief Economic Advisor at Allianz. "The fact that Treasuries didn't act as a safe haven is a reflection of growing discomfort with policy unpredictability".

If investors weren't buying US bonds or dollars, where did they go?

The answer lies in the sharp, almost desperate pivot to gold. Long considered a relic of a bygone monetary era, gold has made a striking comeback as the hedge of last resort. As of late April 2025, gold prices soared past $3,300 per ounce—a historic high — reflecting not only speculative activity but also deliberate, long-term positioning by sovereign buyers, institutions, and high-net-worth individuals.

Unlike past gold rallies that were driven by seasonal or festive-driven demand from countries like India, this surge has distinctly geopolitical undertones. Central banks and sovereign funds are leading the charge — not just buying gold futures or ETFs, but accumulating physical gold reserves and they want to keep it within their own borders.

Germany offers a compelling case study. With the world's second-largest official gold reserves at 3,350 tonnes, Germany has taken concrete steps to physically repatriate its bullion. Under growing political pressure from the Christian Democratic Union (CDU), the German government has now completed the return of over 670 tonnes from vaults in New York and Paris to Frankfurt. The CDU has publicly urged the Bundesbank to complete full repatriation, citing the strategic necessity of domestic custody in an increasingly unstable world.

"The CDU believes that German gold should remain in German hands, on German soil," said Friedrich Merz, CDU's current leader. "This is not just about economics. It's about sovereignty."

This sentiment is not isolated. According to the World Gold Council's Q1 2025 data, global central banks purchased over 290 tonnes of gold—marking the highest quarterly accumulation on record. The top buyers included Turkey, China, and India, all of whom are diversifying away from dollar-denominated assets amid increasing geopolitical uncertainty.

Investors' renewed interest in gold has also been driven by fears of a broader global economic decoupling. With Trump openly discussing the reimplementation of tariffs on Chinese goods and even European auto exports, markets are beginning to price in the possibility of a trade regime similar to, but more aggressive than, that of his first term. The rhetoric has sparked concern over retaliatory measures, disrupted supply chains, and reduced global trade volumes—all of which weigh heavily on the outlook for multinational earnings.

The role of gold in this shifting landscape is no longer just financial — it's also strategic. "Gold is the only asset that has no counterparty risk," noted Jeffrey Gundlach, CEO of DoubleLine Capital. "In a world where economic conflict is morphing into financial weaponisation, the ability to hold and control your own reserves matters more than ever".

Some investors did rotate into other sovereign bonds, such as German Bunds or Japanese government bonds, but the yields on these instruments remain unattractive and in some cases negative. Thus, gold has regained its lustre not as a speculative trade, but as a necessity in a world where even US Treasuries appear vulnerable to political shocks.

Looking ahead, as the Trump administration pushes forward with its America First economic agenda and the global order continues to fragment, gold may remain the anchor of last resort. It is not merely a hedge against inflation or currency depreciation — it is becoming, once again, the financial bedrock in a world increasingly bereft of trust.

As China doubles down on its assertive economic policies and the United States reasserts tariff-driven diplomacy under the Trump administration, the global financial landscape is undergoing a fundamental realignment. Against this backdrop, gold's resurgence is not merely a reflexive response to volatility but a reflection of deeper strategic recalibration.

For investors, institutions, and sovereign states, the shift toward gold signals a long-term move away from reliance on fiat assets and toward tangible stores of value. This renewed embrace of gold is not a passing phase — it is rapidly becoming a structural trend in a world where financial uncertainty has become the new constant.

THE WRITER IS A FINANCIAL MARKET ENTHUSIAST AND IS ATTACHED TO PAKISTAN'S STOCKS, COMMODITIES AND EMERGING TECHNOLOGY