Is Gold Being Overvalued by the Safe-Haven Narrative?

Published on 27.05.2025

Throughout 2025, gold prices have surpassed $3,500 per ounce, reaching unprecedented levels. The classic narrative of gold as a “safe haven” during uncertain times has enticed all kinds of investors, pushing global demand higher.

Many analysts are warning that media-driven euphoria might be distorting the real perception of gold as an investment asset. Beyond the headlines, a key question arises: will gold remain a reliable bet, or are we witnessing a trend that could fade away?

What’s Driving the Price? The Three Main Factors

1. Geopolitical Uncertainty and Distrust in Fiat Currencies

   Trade tensions between China and the United States, combined with conflicts in Eastern Europe, have encouraged investors to seek traditional assets like gold to protect their wealth. Fears of a rapid devaluation of major currencies have amplified gold’s recent moves, although much of it is linked to volatility concerns rather than fundamentals.

2. Expectations of Expansive Monetary Policy

   Inflation has remained above targets in both the U.S. and Europe, though the situation is gradually improving. On the other hand, central banks are signaling future rate cuts. This combination has created uncertainty in traditional markets, strengthening demand for physical assets.

3. Institutional Buying and Retail FOMO

   Central banks and large funds have been increasing their gold reserves, reinforcing its position as a strategic asset. Meanwhile, retail buying has surged, with cases like Hatton Garden Metals in London reporting record sales of bars and coins. But the key question is: Is this strategy still valid now that the U.S. and China have reached a tariff agreement?

What Risks Do New Investors Face?

The excitement around gold doesn’t come without risks, especially for those joining late in the cycle. Key risks include:

• Underestimated Volatility:Though perceived as stable, gold has seen sharp declines in the past. Between 2011 and 2015, it lost over 40% of its value. Clearly, gold is highly sensitive to market environments and news.
• Stagnant Returns:Unlike stocks or bonds, gold generates no passive income. Its profitability depends entirely on price appreciation, which inherently makes it speculative under current conditions.
• Maintenance Costs:Physical gold comes with storage, insurance, and transaction fees, impacting actual returns, though this applies differently to small retail investors.
• Risk of Buying at the Top: Retail investors often join during the final phase of a bull run, increasing the likelihood of significant corrections.

Where Is Capital Flowing?

While gold has dominated the headlines, it’s not the only destination for investors seeking safety:

• German and Swiss Bonds: Traditional safe-haven assets have seen notable demand increases in 2025.
• Stable Emerging Markets: Economies like India and Brazil, with solid fundamentals, are attracting investments thanks to consistent fiscal policies.
• Diversified Real Assets: Funds indexed to commodities and industrial metals have also benefited from the current climate of uncertainty.

Impact on Global Financial Markets

The gold rally is having broader repercussions across markets:

• Dollar Under Pressure:Although still the world’s reserve currency, the growing preference for physical assets reflects a gradual erosion of trust in the dollar.
• Increased Volatility: Capital flows into gold are a clear symptom of risk aversion, which is mirrored in heightened volatility indexes across other asset classes.
• Challenges for Monetary Policy:The revaluation of gold complicates the central banks’ efforts to balance inflation control with economic growth.

What Does This Mean for the Future?

An unchecked gold boom could signal a shift in investors’ perception of global financial stability. While gold has historically maintained its value, the current overbought conditions could lead to significant corrections if geopolitical tensions ease or confidence in currencies returns.

It’s worth noting that as of May 15, major U.S. indices have regained some confidence following the latest comments on a tariff truce between the U.S. and China. This could dampen enthusiasm for further gold buying in the short term.

Final Thoughts: Is Gold Still a Real Safe Haven?

In reality, gold remains a valuable component in a diversified portfolio. However, impulsive investment, fueled by media hype and fear, can be dangerous. History shows that buying during euphoric peaks often leads to disappointing results.

The real challenge for investors today is distinguishing between legitimate wealth protection and pure speculation driven by geopolitical headlines. The key lies in maintaining discipline, avoiding FOMO, and understanding that financial security is built on solid fundamentals, not passing trends.