When Safe Havens Aren’t Safe: The Behavioral Finance of Panic Buying

The phones at Mocatta Metals Corporation rang constantly in early January 1975. Americans who had watched Barbara Walters hold gold on NBC’s Today Show just days earlier now wanted to buy their own. Many couldn’t articulate why they wanted gold beyond a vague sense that it represented safety and security in uncertain times. Dr. Henry Jarecki, the company’s Chairman, recognized the pattern immediately: retail investors were panic-buying an asset they didn’t understand, driven by fear rather than analysis.

This moment offers a perfect case study in behavioral finance—the gap between how people believe they make investment decisions and how they actually behave when emotions run high. The gold rush of 1974-75 was not about rational portfolio construction or strategic asset allocation. It was about psychological refuge, the human need to “do something” during a crisis, and the dangerous illusion that popular assets are safe assets simply because everyone is talking about them.

Jarecki’s background in psychiatry gave him unique insight into this dynamic. Before entering commodities trading in 1970, he had completed his training at Yale University School of Medicine and co-authored “Modern Psychiatric Treatment,” a pioneering textbook on psychopharmacology. He understood that human decision-making under stress follows predictable patterns that often lead to suboptimal outcomes. The same anxieties that made gold feel safe—inflation, government mistrust, institutional breakdown—were precisely the emotions that led investors to buy at elevated prices driven by panic rather than value.

The Safety Illusion Across Decades

The pattern Jarecki observed in 1974 has repeated across every subsequent market panic, though the specific assets change. During the 2008 financial crisis, investors stampeded into money market funds—supposedly the safest of safe havens—only to discover that even these vehicles faced risk when one prominent fund “broke the buck” and couldn’t maintain its $1.00 share price. The panic that followed required government intervention to prevent a complete meltdown of short-term credit markets.

The 2021 meme stock phenomenon illustrated the same psychology with different packaging. Retail investors convinced themselves that GameStop and AMC represented safe bets because “everyone on Reddit is buying” and “hedge funds can’t win against the people.” The sense of collective action and shared purpose created a feeling of security that had nothing to do with the underlying businesses or their prospects. When the frenzy faded, many participants discovered that following the crowd into popular trades is among the riskiest behaviors in markets.

More recently, the 2023-2024 rush into high-yield savings accounts and money market funds reflected similar instincts. As interest rates rose sharply, investors moved trillions from stock and bond funds into cash equivalents, seeking safety from volatility. While these vehicles genuinely offered higher yields and capital preservation, the timing of the flood—coming after markets had already declined significantly—meant many investors sold risk assets near lows and moved to cash near the peak of interest rates, precisely backward from optimal behavior.

Why Smart People Make Emotional Decisions

The paradox of panic buying is that the investors engaging in it are often intelligent, educated people who would recognize the flaws in their logic if the same decisions were presented without emotional context. Someone calmly analyzing whether to buy gold at elevated prices driven by a crisis would likely conclude it’s a poor entry point. But that same person, experiencing genuine anxiety about inflation and institutional stability, feels psychologically compelled to act.

This compulsion to “do something” during uncertainty represents a deeply human response to loss of control. Markets are declining, inflation is rising, news is negative—sitting still and maintaining a long-term plan feels psychologically impossible even when it’s strategically correct. Buying gold, or whatever asset has captured attention as a refuge, provides the feeling of taking action, regaining control, and protecting oneself. The fact that the action may be counterproductive doesn’t diminish its psychological appeal.

Henry Jarecki’s warning in 1974 addressed exactly this dynamic. He wasn’t suggesting that gold had no legitimate role in portfolios or that concerns about inflation were unfounded. Rather, he cautioned that the same fears driving people toward gold were also driving its price to levels that might not be sustainable. Small savers who bought gold because it felt safe were taking on significant risk—not because gold itself is inherently dangerous, but because buying any asset during a panic-driven price spike exposes investors to the volatility of emotion-driven markets.

The Timeless Lesson

The enduring insight from Jarecki’s 1974 commentary is that safety is often an illusion created by collective psychology rather than a property of the asset itself. Gold felt safe because it was tangible and governments couldn’t print it. Money market funds felt safe because they were sold as cash equivalents with stable values. Meme stocks felt safe because of crowd momentum and social media reinforcement. High-yield savings felt safe because they were FDIC-insured and offered positive real yields.

All of these assets have legitimate uses in appropriate contexts. But the feeling of safety that drives panic buying during crises is a dangerous guide to decision-making. The time to establish portfolio insurance is before the fire starts, when prices reflect normal conditions rather than fear premiums. By the time an asset feels psychologically necessary—when “everyone is talking about it,” and the case for ownership seems obvious—it’s usually too late for advantageous positioning.

This lesson transcends any specific asset class or market era. Whether the conversation is about gold in 1974, real estate in 2006, Bitcoin in 2021, or whatever captures attention during the next crisis, the behavioral pattern remains constant. When fear drives markets, retail investors often make decisions they later regret. Henry Jarecki’s willingness to state this uncomfortable truth—even as his company stood to profit from gold fever—demonstrated the intellectual honesty that separates genuine expertise from sales pitch. The assets we run toward during panic often turn out to be the ones we should have approached with the greatest caution.

This article has been published in accordance with Socialnomics‘ disclosure policy.