Gold hasn't failed; we just keep misunderstanding its role

(Kitco News) - Gold is under pressure, central banks are selling, and investors are asking a familiar question: Has gold lost its safe-haven status?

That conclusion is not just premature—it fundamentally misunderstands what gold is designed to do.

Gold’s worst decline since the early ’80s has come amid one of the most volatile geopolitical environments in years. Yet instead of rising alongside uncertainty, gold has been liquidated. To some, that looks like failure.

In reality, it is proof that gold is doing exactly what it is supposed to do.

Gold’s role is not simply to rise during crises—it is to provide liquidity when everything else is under stress. In other words, it’s less of a panic button and more of a financial fire extinguisher—useful, but not always pretty when deployed.

When markets tighten, investors don’t just seek safety; they seek cash. And the easiest way to raise cash is by selling assets that have already performed well.

After a historic rally fueled by central bank demand and investor inflows, gold became one of the few assets with meaningful gains. So it was sold—not because it failed, but because it succeeded. Success, in this case, comes with the unfortunate side effect of being easy to liquidate at a profit.

And it’s not just investors who are looking for liquidity. Analysts speculate that a key factor behind the selloff is that central banks have been forced to monetize their gold.

For the last four years, central bank buying has underpinned gold’s strength. But that support is showing cracks. Policymakers are increasingly prioritizing short-term economic stability, currency defense, and energy security over balancing their reserve assets.

Turkey’s decision to use nearly 60 tonnes of its gold reserves to stabilize its currency is a clear example. Gold, as a strategic store of value, is being used as an emergency lever—less “vault asset,” more “break glass in case of crisis.”

What makes Turkey’s move particularly interesting is that we have seen this before. In 2023, Turkey sold 159 tonnes of gold between March and May to meet growing domestic demand during a historic inflationary period.

After navigating that crisis, Turkey’s central bank quickly returned to the market, becoming one of the most aggressive buyers in the following two years. By 2025, its reserves had surpassed 2023 levels.

Central banks and governments will continue to use the liquidity in their reserves, but the reasons they started buying gold in the first place have not disappeared.

The biggest mistake investors can make is to see gold’s weakness as a loss of relevance.

Gold is doing what it has always done in times of stress: providing liquidity, absorbing selling pressure, and acting as a financial buffer. Even central banks are turning to it when conditions deteriorate.

Gold hasn’t failed. What has been invalidated is the idea that it only moves in one direction during crises.