Gold – a valuable but volatile haven

Gold prices have gained as much as 20% in 2025, setting a new record and marking the best start to a year for the precious metal since 2006. The rally, driven by global economic uncertainties and a search for diversification away from US financial assets, takes gold’s rise since March 2024 to 50%. We look at alternative havens, and compare past performance in similar economic environments.

From 2022 through 2024, a bullish gold narrative centred on geopolitical tensions and investors seeking alternatives to the US dollar. Over these three years, central banks bought around 1,000 tonnes of gold per year, marking a doubling of the pace of purchases seen in the previous decade.

For the first three months of 2025, this trend continued, but was interspersed with goods importers ‘frontloading’ shipments in order to avoid US tariffs that began to kick in in April. This explains why gold was just one of several commodities – including copper and silver – that performed so well until 2 April. However, since the Trump administration’s tariff announcements on 2 April, concerns about a potential US recession and a scramble among investors to diversify their portfolios have driven gold prices even higher. These factors have been further exacerbated by investors looking for ways to reduce their exposure to the US dollar, as part of a wider debate around its stability as the world’s reserve currency, and the dependability of US assets.

The rally in gold peaked with prices rising by 17% in a two-week period, setting a record of USD 3,500 per ounce on 22 April. Adding to existing trade and geopolitical policy uncertainties, this period coincided with concerns over President Trump’s public attacks on the Federal Reserve’s independence.

Gold likely to consolidate in a range for now

Since then, gold has retreated and the US dollar has stabilised against major currencies. If the US economy avoids recession, as we expect, and the Trump administration further moderates its tariffs and interest rate rhetoric, gold should settle in a price range of USD 3,000/oz to USD 3,300/oz in the near term. 

If the US economy avoids recession… gold should settle in a price range of USD 3,000/oz to USD 3,300/oz

By some metrics, investor sentiment has reached extreme bullish levels, not dissimilar to those seen at the start of the pandemic in 2020, when a global recession threatened and central banks were using quantitative easing tools. Retail investors’ demand for gold in portfolios, visible through investments in ETFs (Exchange Traded Funds), has picked up sharply. The pace of flows into the largest gold ETFs in the US and Europe, measured over 4-week periods, are at levels last seen during the Covid shock. Similarly, inventories of metals including gold, silver and copper held on the New York Commodity Exchange Inc. (COMEX), surged in the first quarter of the year in anticipation of US tariffs, and have since declined. Import demand in the first three months of the year therefore also supported gold, and helps to explain the recent consolidation in prices.

Longer term diversification gains remain

Despite its volatility, gold has historically performed well during sharp falls on the S&P 500. As a recent study has shown, gold gained in 11 of the major stock market drawdowns since the mid-1980s. But gold is not the only financial asset to offer some cushion from falling equities. Both the Swiss franc and Japanese yen have also performed strongly during equity drawdowns.

In order to test the performance of haven assets, we examined the performance of gold, the Swiss franc and the Japanese yen in the year following the start of an S&P 500 correction of at least 10%. We divided correction episodes into those accompanied by an economic recession and those that were not. Our sample looks at the period since 1973 since before then exchange rates were not free-floating, and gold’s value was heavily managed as part of the Bretton Woods monetary agreement.

Historically, initial gains in haven assets have not persisted over the mid-term

Historically, initial gains in haven assets have not persisted over the mid-term. Overall, in phases of economic recession, gold initially delivers high returns, but its gains fade within a few months of the start of the S&P 500’s correction. On average, for example, the Japanese yen and Swiss franc gained around 5% or 6% in the three months following the start of the equity market drawdown. A “hit ratio” shows the share of total events in which an asset performed positively during equity market declines. For comparison, we include the current sell-off episode that started on 19 February this year. This most recent episode suggests a very similar behaviour by traditional havens, although Swiss franc gains have been higher than average, and both gold and the Japanese yen have been lower. The euro and sterling have also gained this year suggesting that, in contrast to past episodes, the US dollar’s weakness has been more widespread, exacerbating losses for unhedged international investors in US equities.

Our expectation remains that the US will avoid a recession. We have a neutral position on gold and a positive outlook on the Swiss franc and Japanese yen, which play a valuable diversification role versus equities in the instance of renewed stock market volatility. Both the Swiss franc and Japanese yen have strengthened towards or even beyond their fair values against the US dollar. We also expect the Swiss National Bank to cut interest rates to zero, and cannot exclude the risk of negative rates, or currency market interventions, to support Swiss exports. This is especially likely if the US applies punitive tariffs to pharmaceuticals. The Japanese yen’s recent strength suggests that the Bank of Japan will keep its policy rate on hold this year. Our 12-month outlook for haven assets therefore depends on developments in trade agreements between the US and its key partners, as well as broad market risk sentiment.

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In the case of non-recessionary equity drawdowns, our results suggest more limited gains in both size and in time for these havens. Gold performs poorly after the first two months of an equity correction. The Swiss franc performs slightly better, but then similarly declines. In contrast, the Japanese yen performs better, and holds its value for up to six months after the start of a US equity drawdown. In these circumstances, the cost of hedging must be taken into account as the Swiss franc and Japanese yen are low-yielding currencies, which implies a carry cost for holding short US dollar positions whenever US interest rates are higher, as is the case today, than in Switzerland or Japan. Any diversification benefit therefore needs to be carefully balanced with the cost of holding such positions.

The Japanese yen… holds its value for up to six months after the start of a US equity drawdown

What to do?

We expect gold to see a period of consolidation between USD 3,000/oz and USD 3,300/oz in the months ahead. From a tactical perspective, and given gold’s high volatility, phases of weaker prices can create opportunities to accumulate the precious metal.

From a strategic perspective, we continue to hold gold as part of our Strategic Asset Allocations in portfolios. Gold has a low correlation to US equities and, as we show, has tended to perform well in periods of US equity drawdowns. This said, and as has been clear in recent weeks, it remains a rather volatile haven, and overall sentiment and flows demand careful analysis.

Alternative havens can therefore offer better performance where an equity drawdown is not followed by a recession. This is true for the Swiss franc, and more so for the Japanese yen, which stands out as also performing in a recessionary environment. However, considering the very strong rally already seen across all haven assets, some reversal looks likely – if trade negotiations lower tariffs, and international markets can be reassured that the Trump administration will not interfere with the Federal Reserve’s independence.