Gold prices have experienced a remarkable rise since 2023, reaching unprecedented levels and setting several all-time highs.

Traditionally viewed as a store of value, gold’s demand stems mainly from retail customers for jewelry, investment portfolios, and central banks holding it as a reserve asset.

Unlike most investment vehicles such as bonds and equities, gold does not generate cash flow; rather, its allure lies in its intrinsic characteristics, especially during times of uncertainty.

Gold is not a liability of any counterparty, minimizing default risk, and its limited supply ensures it retains intrinsic value, making it a popular choice as a portfolio diversifier and a hedge against inflation and US dollar depreciation.

Historically, gold has served as a safe haven during times of market stress, particularly in contexts marked by elevated geopolitical risk or significant policy uncertainty.

A comparative analysis over the last three decades indicates that gold tends to perform well when other asset classes falter.

For instance, returns from global equities, gold, US Treasuries, and the US dollar show that gold prices tend to rise during heightened geopolitical tensions, while stock and bond prices generally decline.

Central banks from emerging market economies have notably increased their gold purchases over the past three years, likely as a protective measure against geopolitical tensions and potential sanctions.

During periods of economic policy uncertainty, gold consistently outperforms equities, while bond prices typically decrease.

Extreme volatility in stock markets correlates with investor trends towards gold, offering a protective hedge against stock market downturns.

Historical data demonstrates that during crises characterized by heightened geopolitical risks, such as the 9/11 attacks, the onset of the COVID-19 pandemic, and the invasion of Ukraine, gold prices have surged concurrently with the US dollar, while stock and bond markets have seen significant declines.

Recent trends in gold futures markets, specifically on the COMEX exchange, indicate a robust connection between rising policy uncertainty and gold prices.

Following the US presidential election in November 2024, policy uncertainty, particularly around global trade dynamics, has surged.

Surveys conducted in early 2025 revealed that 58% of asset managers viewed gold as the most likely asset class to thrive in a severe trade war situation.

Consequently, there has been a measurable increase in gold inventories at COMEX vaults, alongside an uptick in the number of futures contracts marked for physical delivery, reaching levels not seen since July 2007. This shift suggests a growing investor preference for physical gold amid persisting economic uncertainties.

The demand for gold has also led to increased borrowing costs and prices for gold futures.

Following the announcement of US tariffs in April 2025, concerns about potential import tariffs on gold prompted logistics shifts, with gold stored in London being transported to New York.

This situation has influenced borrowing conditions in the London market, raising costs while presenting risks related to the delivery of physical gold amid market stress and potential disruptions in shipping and logistics.

In the euro area, exposure to gold through derivatives has risen significantly, with gross notional exposures reportedly amounting to €1 trillion as of March 2025, marking a 58% increase since late 2024. A substantial portion of these derivatives contracts are traded over-the-counter, implying that a significant amount of risk may not be centrally cleared.

Almost half of the euro area’s gold derivatives contracts involve banking counterparties, many of which are situated outside the euro area, thus increasing exposure to external shocks within the gold market.

In contrast, gold exchange-traded funds (ETFs) held by investors in the euro area stood at approximately €50 billion in the final quarter of 2024, which is relatively modest compared to overall financial assets.

Gold markets appear to reflect rising geopolitical tensions and substantial economic policy uncertainty.

While the demand for gold as a safe haven has surged, the preference for physically deliverable gold in futures contracts hints at investor expectations for continued or escalating geopolitical risks.

The unfolding circumstances raise potential implications for financial stability, given that while overall exposure to gold within the euro area financial sector may seem limited in comparison to other asset classes, commodity markets are often vulnerable due to their concentration within a few large entities, reliance on leverage, and lack of transparency due to the prevalence of OTC derivatives.

The possibility of sudden margin calls and the unwinding of leveraged positions could precipitate liquidity challenges among market participants, potentially propagating shocks through the broader financial system.

Additionally, disruptions in the physical gold market may lead to increased risks of a squeeze, exposing market participants to significant financial strain.