(The opinions expressed here are those of the author, a columnist for Reuters)

ORLANDO, Florida - Gold's historic price swings and record volatility are hardly hallmarks of the ultimate safety play. This is not what investors, including central banks, signed up for.

Gold ‍is essentially a cumbersome rock with ‍high storage costs that pays no yield. But it's also long been considered the world's safest asset, attracting buyers seeking a store of value, a hedge against inflation, ​a haven during periods of volatility, portfolio diversification or a mix of all four.

But the extraordinary price moves of late call these assumptions into question.

The yellow metal plunged 10% on Friday, its biggest ⁠fall in more than 40 years, only to record its largest rise since 2008 a few days later. One-week realized volatility shot above 90%.

This followed a protracted speculative frenzy that drove bullion to a ⁠record high ‌near $5,600 an ounce earlier last week, including a 30% surge in the first four weeks of 2026.

This is not what investors expect when increasing their allocations to gold. Bullion is supposed to be the most stable portion of an investment portfolio, an anchor amid a stormy sea of stocks, currencies and credit. That ⁠now seems quaint.

During the recent bout of volatility, some short-term investors, those who must "mark to market", were forced to frantically sell assets to cover snowballing losses generated by a supposed safe haven.

"Things become very frayed and dysfunctional with realized or implied volatility at these extreme levels," says Chris Weston, head of research at Pepperstone, about the precious metals rout. "One's ability to hedge is shot to pieces, as the cost is too crazy."

This level of churn is not what the biggest buyers of bullion – longer-term "buy and hold" investors, including central banks and reserve ⁠managers – bargained for either.

SAFE-HAVEN SHINE DIMS

Central banks have hoovered ​up record quantities of gold since 2022, boosting its share of their reserves. Indeed, the yellow metal has leapfrogged the euro to become the second-largest asset in central bank reserves, behind only the U.S. dollar. 

This multi-year diversification away from ‍the greenback has been driven, in part, by growing unease about U.S. foreign policy, including the aggressive use of sanctions, as well as the country's unsustainable fiscal trajectory.

Dollar "debasement" fears have grown among a larger cohort of investors, however, since President Donald Trump ​returned to the White House and began pursuing an unorthodox mix of trade, tax and foreign policy. That appears to be at the heart of the recent gold buying frenzy, which was amplified by momentum trading.

However, Trump's announcement Friday of Kevin Warsh to be the new Federal Reserve Chair challenges gold's role as prime beneficiary from the so-called "debasement" trade.

Warsh, a former Federal Reserve governor, is seen as a policy hawk relative to other Fed officials. That suggests the central bank's policy stance under his direction is likely to lean on the tight side, at least marginally, puncturing the debasement trade bubble.

WHAT WILL CENTRAL BANKS DO?

Is gold still a good "hedge" amid all the current market, geopolitical, and policy uncertainty crosscurrents?

BlackRock analysts suggest investors look for a "plan B" portfolio hedge, as U.S. Treasuries no longer offer the portfolio protection they used to. Gold is a good tactical play with "idiosyncratic drivers", but isn't a long-term portfolio hedge.

Others believe gold still retains its hedging ability.

Analysts at Barclays reckon it is still a "useful" hedge, and their counterparts at UBS say it is an "attractive" hedge, on course for a new peak of $6,200 an ounce this year. A "mid-single-digit" portfolio allocation is "optimal" ⁠for those with an affinity for gold, they say.

Gold's longer-term fortunes may be largely determined by central banks. Official ‌demand for bullion cooled a bit late last year as gold prices soared, though reserve managers have indicated they plan to increase purchases this year.

Gold's 20% peak-to-trough slump between Thursday and Tuesday will have provided them with a more attractive entry point – but it may also make them reevaluate the world's oldest safe haven.

(The opinions expressed here are those of the author, a columnist for ‌Reuters)

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(By Jamie McGeever; Editing by Marguerita Choy and Alex Richardson)