Why Safe Haven Gold Is Losing Its Appeal for Investors Amid War: What This Means for Your Portfolio
London – Gold, traditionally regarded as a safe haven during periods of market volatility, experienced a decline in investment volumes in the first quarter of 2026, driven in part by the Middle East conflict prompting some investors to liquidate assets for liquidity, according to industry data released Wednesday.
The World Gold Council’s Q1 2026 Gold Demand Trends report indicates that total quarterly gold demand, including over-the-counter transactions, reached 1,231 tonnes, marking a 2% rise compared to the same period last year. While volume growth was modest, the value of gold demand soared to a record US$193 billion, representing a 74% year-on-year increase.
Retail investors globally were attracted by gold’s price momentum and safe-haven status, pushing bar and coin demand up by 42% year-on-year to 474 tonnes. Demand in China surged dramatically by 67%, hitting a record 207 tonnes, surpassing the previous quarterly high of 155 tonnes set in Q2 2013.
Other Eastern markets such as India, South Korea, and Japan also saw notable increases in bar and coin purchases, contributing to a structural shift in gold consumption patterns. Bar and coin demand further benefited from robust growth in the United States and Europe, rising 14% and 50% respectively.
Physically-backed gold exchange-traded funds (ETFs) recorded positive inflows in Q1, with holdings increasing by 62 tonnes. This growth was primarily driven by Asian-listed funds, which added 84 tonnes during the quarter. However, sizeable outflows in March, mainly from US-listed funds, moderated what had been a strong start to the year.
In contrast, gold jewellery demand fell sharply by 23% year-on-year to 300 tonnes, reacting to the elevated gold prices throughout the quarter. Declines were evident across all major markets, including China (-32%), India (-19%), and the Middle East (-23%). Nevertheless, jewellery demand rose in value terms, reflecting consumers’ continued willingness to spend on gold despite record prices. Market analysts suggest that some jewellery demand has shifted towards bars and coins, especially in markets like China and India where jewellery can serve as an investment substitute.
Central banks remained significant contributors to gold demand, adding 244 tonnes to global reserves in Q1. These purchases exceeded both the previous quarter and the five-year average, even as a few official institutions, such as the Central Bank of the Republic of Türkiye, the Central Bank of the Russian Federation, and the State Oil Fund of the Republic of Azerbaijan, engaged in limited selling. Overall, gold’s role as an indispensable reserve asset was underscored during this period of extreme market turbulence.
Total gold supply rose 2% year-on-year to 1,231 tonnes. Mine production reached a new record for the first quarter, while recycling increased modestly by 5%, despite high prices, suggesting a restrained supply response and tighter market conditions.
Louise Street, Senior Markets Analyst at the World Gold Council, commented:
“Gold’s volatility has significantly increased in 2026, with prices peaking above US$5,400/oz in January before undergoing a notable but contained correction. The combination of price momentum and heightened geopolitical risks boosted investment demand, particularly in Asia, as investors sought safety in physical gold. Continued central bank purchases helped offset some tactical selling.
Looking forward, the geopolitical risk premium is expected to sustain investment demand, although prolonged higher interest rates may pose challenges, especially in Western markets. Jewellery spending is likely to remain resilient despite the pressure of high prices on volume. On the supply front, mine production is anticipated to grow modestly, though potential energy shortages could temper this outlook.”
Special Analysis by Omanet | Navigate Oman’s Market
The surge in gold’s value and investment demand amid geopolitical tensions highlights gold’s role as a strategic hedge in volatile times, presenting Omani businesses with opportunities to diversify portfolios and hedge against market instability. However, the decline in jewellery demand amid high prices signals potential risks for local gold retailers, urging entrepreneurs to pivot towards investments in bars, coins, and ETFs that are gaining traction. Smart investors should closely monitor geopolitical developments and energy supply factors that could influence gold supply and prices, capitalizing on Asia’s rising demand trends while preparing for Western market headwinds.
