The phenomenon behind gold as a safe haven
When the world wavers due to economic crises, geopolitical tensions or inflation, something remarkable happens: the gold price shoots up. This pattern has been repeating for centuries and is part of the reason why gold is seen as a safe haven. Why does this keep happening? The answer lies in a combination of psychological, economic and practical factors that make gold a unique precious metal.
Gold has retained its value for thousands of years and is recognised worldwide as a valuable asset. At the same time, it is physical and scarce – you cannot ‘print more’ of it like paper money. These characteristics make it a natural choice for people who want to protect their wealth against uncertainty.
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The mechanisms behind price increases during crises
Psychology and flight to safety
During economic uncertainty, people behave predictably: they seek safety against all sorts of uncertainties:
- Shares can suddenly become worthless
- Bonds may not be repaid
- Currencies can collapse
Gold, on the other hand, has been used for over a thousand years and retains its value. This ‘flight to safety’ causes demand for gold to rise explosively as soon as the first signs of trouble appear. Investors dump risky assets and rush en masse to precious metals. More demand automatically means higher prices.
Inflation and loss of purchasing power
One of the most powerful drivers behind rising gold prices is inflation. When the central bank prints money to combat a crisis, that money loses purchasing power. A loaf of bread that costs two euros today might cost three euros tomorrow.
Gold works differently. It is a physical precious metal with limited supply. Whilst paper money falls in value, gold retains its purchasing power or even becomes more valuable. Historically, the gold price in the Netherlands rose by 638 per cent between 2000 and 2024, whilst inflation was ‘merely’ 73 per cent. This demonstrates the power of gold as protection against loss of purchasing power.
Monetary policy and interest rate policy
Central banks play a crucial role in gold prices through their interest rate policy. When interest rates are low – which often happens during crises – gold becomes more attractive. Why? Gold yields no dividend or interest, but also misses no return when other investments yield nothing. Low interest rates make it cheaper to finance gold and more expensive to leave money ‘in the bank’. This drives up demand for gold and causes price increases.
Concrete examples from history
The financial crisis of 2008
During the banking crisis of 2008, we saw a perfect example of gold as a safe haven. Whilst banks collapsed and stock markets crashed, the gold price rose steadily. Investors had lost confidence in the financial system and sought refuge in something tangible.
COVID-19 pandemic
The coronavirus crisis once again demonstrated the power of gold. Despite a brief dip at the start of the pandemic, gold recovered quickly and reached new records around $1,050 per troy ounce in 2020. The combination of economic uncertainty, massive money creation and geopolitical tensions created ideal conditions for gold price increases.
Recent developments 2024-2025
The year 2024 became a record year for gold, with 37 new price records and an increase of 27 per cent – the best gold year since 2010. The gold price even reached above $1,900 per troy ounce. This was due to ongoing geopolitical tensions (Ukraine and the Middle East), inflation concerns and central banks expanding their gold reserves.
The role of central banks
Central banks worldwide have become major players in the gold market. Countries such as China and Russia systematically buy large quantities of gold to become less dependent on the US dollar. This creates constant demand that supports prices.
I find it remarkable that even De Nederlandsche Bank holds more than 600,000 kilogrammes of gold in its reserves. President Klaas Knot emphasised that they intend to retain this gold – a clear signal that even governments see gold as the ultimate insurance policy. Belgium also holds around 227 tonnes of gold reserves – which are primarily stored at the Bank of England.
Why this pattern keeps repeating
Limited supply
Gold is scarce. All the gold ever extracted from the earth amounts to approximately 212,000 kilogrammes worldwide according to the World Gold Council. You cannot ‘make’ gold as you can print money. This scarcity forms a natural floor under the price.
Universal acceptance
Gold is accepted everywhere in the world as valuable. It does not matter which country you are in or what crisis is playing out – gold retains its value. This universal acceptance makes it the perfect international safe haven.
Independence from the financial system
Gold has no counterparty risk. It does not depend on the stability of banks, governments or companies. A gold coin remains valuable regardless of what happens to the financial system around it.
Practical considerations
Different methods of ownership
There are multiple ways to benefit from gold price increases:
- Physical gold: Coins and bars offer direct protection but require storage
- Gold ETFs: Easy way to invest in gold without physical storage
- Gold mining companies: Indirect exposure to gold prices with additional business risks
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Timing and volatility
Although gold usually rises during crises, this does not always happen immediately. There can be a delay between the emergence of problems and the price reaction. Moreover, even gold can be volatile – silver for example initially reacted during COVID-19 with a decline before recovering strongly.
Future expectations
Analysts are predominantly positive about gold prices for the coming years. Bank of America predicts an average gold price of $1,000 per troy ounce in 2025, whilst UBS and Citi maintain similar targets. These expectations are based on ongoing geopolitical tensions, possible interest rate cuts and continued demand from central banks.
Conclusion
The pattern whereby gold rises during crises is no coincidence, but the result of fundamental economic and psychological forces. The combination of scarcity, universal acceptance, inflation protection and the loss of confidence in traditional financial systems makes gold a natural safe haven. For people who want to protect their wealth against uncertainty, inflation and economic shocks, gold therefore remains a relevant option. History shows that this pattern will continue to repeat itself as long as economic uncertainty exists in the world.