International gold prices face a rare storm, with multiple factors resonating to cause a failure of the safe-haven function

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Reprint Source: Jin10 Data

Original Source: CME Group

Recently, the international gold market has experienced a rare “perfect storm.” Gold prices did not act as a safe haven amid geopolitical conflicts as expected; instead, they faced selling pressure, with astonishing single-day declines, repeatedly breaching multiple key psychological levels, and giving back all gains made this year. This is not merely a technical correction but a deep adjustment triggered by multiple macro factors resonating together. The core logic lies in: the temporary failure of traditional gold pricing mechanisms and a liquidity crisis sweeping global markets.

Why did the safe-haven halo fail?

2. Geopolitical narratives under “Buy the Rumor, Sell the Fact”

The traditional logic of “a cannon shot, gold worth ten thousand taels” did not materialize as expected during the escalation of US-Iran tensions. Gold prices not only failed to rise but accelerated downward. This seemingly contradictory phenomenon mainly reflects a market re-pricing of safe-haven logic.

First, risk premiums have been overextended in advance. Since the outbreak of the Russia-Ukraine conflict in 2022, COMEX gold futures under CME have risen from around $1,600 to over $5,600, a cumulative increase of more than 250%. This indicates that geopolitical risk premiums have been fully priced in. When a new conflict actually unfolds, market sentiment quickly shifts to “buy the rumor, sell the fact,” with the large early profit-taking turning into heavy selling pressure.

Second, the transmission mechanism has changed. Unlike sudden “black swan” events, the prolonged tension in US-Iran relations was anticipated by the market. The key point is that this round of conflict directly pushed up oil prices but unexpectedly triggered macro mechanisms that suppress gold prices: “Oil prices soar → inflation expectations rise → Fed tightening expectations strengthen.” Under this logic chain, gold, as a non-interest-bearing asset, is hedged by rising real interest rate expectations. The rate logic has defeated the geopolitical logic, causing gold’s safe-haven function to temporarily fail.

2. The synergistic suppression effect of the dollar and US Treasury yields

The core factor behind this sharp correction in gold is the liquidity tightening caused by reshaped interest rate expectations. When market safe-haven sentiment heats up, investors shift their preference from risk-return pursuit to asset liquidity, leading to large capital inflows into the most liquid assets—US dollars.

Capital flows driven by a strong dollar

The dollar index has recently performed strongly. On one hand, due to the US’s special position in the global energy market, high oil prices have a relatively small impact on its economic fundamentals; on the other hand, during periods of high global macro uncertainty, the dollar, with its unparalleled liquidity and depth, once again becomes the preferred safe-haven tool. This creates a “strong dollar, weak gold” pattern, prompting capital to flow out of gold and into dollar assets.

Rising US Treasury yields and increased holding costs

From the high point on February 3 to the low on February 23, the movement closely coincides with gold’s performance, reflecting liquidity tightening and adjustments in monetary policy expectations. As a non-interest-bearing asset, gold’s relative attractiveness diminishes during an interest rate hike cycle. When the market sells off US Treasuries heavily to raise funds, gold also suffers, as the sharply increased opportunity cost of holding it drives further outflows.

3. Passive deleveraging under liquidity shocks

The intense volatility in global stock markets has exacerbated liquidity tensions. For example, in South Korea’s stock market, sharp declines triggered forced liquidations of highly leveraged positions (margin calls). To meet margin requirements, investors were forced to sell liquid, profit-rich assets—gold. This “asset price decline → margin call → sell to realize” negative feedback loop became a direct driver of gold’s downward trend. In such extreme conditions, gold’s safe-haven attribute is overshadowed by its high liquidity, turning it into a tool mainly used to alleviate liquidity pressures in other assets.

Changes in central banks’ gold purchase pace

A notable signal is that the global central banks, long-term supporters of gold, have recently adjusted their accumulation behavior.

Shifts in reserve operations:

● Poland’s central bank: influenced by national defense spending needs, has begun phased reductions in gold reserves.

● Russia’s central bank: to cope with economic pressures amid changing energy environments, has joined gold sales to supplement foreign exchange liquidity.

● Turkey’s central bank: to stabilize the national exchange rate and foreign reserves, has recently sold gold as well.

These central bank actions have important market implications. Although central bank gold purchases are generally viewed as long-term strategies, the slowdown or reversal in pace indicates that the market has lost a key stabilizing buyer in the short term, making gold more vulnerable to speculative selling.

4. The oil “see-saw” effect: capital shifting from gold to oil and chemicals

The surge in oil prices not only suppresses gold via inflation pathways but also creates a direct “see-saw” effect at the asset allocation level. When oil prices break through $100 per barrel, energy sectors become the market focus. Some speculative funds and hedge funds choose to reduce their gold holdings and reallocate to oil and related energy assets to seek more certain returns amid supply-demand imbalances. This capital shift further weakens short-term buying support for gold.

5. Market sentiment and ETF reductions form a negative feedback loop

The sharp correction in gold prices has severely impacted market sentiment, especially among ETF investors highly sensitive to price movements. As gold breaks below key support levels, technical investors and quantitative funds trigger automated stop-loss orders, leading to large-scale outflows from gold ETFs. The continued decline in holdings reinforces bearish signals, forming a vicious cycle of “price decline → ETF reduction → worsening sentiment → further price pressure.”

Summary and risk warning

In summary, the recent gold price trend results from the resonance of multiple factors: redefined safe-haven logic, liquidity tightening, shifts in central bank operations, asset reallocation, and sentiment volatility. Essentially, the market’s pricing logic has temporarily shifted from “credit hedging” back to rate-based pricing. Under high interest rates and a strong dollar, gold’s short-term outlook remains challenging.

Risk warnings:

Although long-term factors supporting gold (such as de-dollarization and global debt issues) still exist, short-term market risks are extremely high.

Investors should pay close attention to:

1. Persistent liquidity pressures: If global financial market turbulence intensifies, liquidity shocks could further amplify gold price volatility.

2. Hawkish surprises in Fed policy: If inflation data remains high, forcing the Fed to adopt more aggressive tightening, gold could face sustained downward pressure.

The market may currently enter a high-volatility consolidation phase. Investors are advised to remain cautious, closely monitor macroeconomic indicators and policy signals, and rationally assess entry timing.

CME Group COMEX Gold Futures (Contract Code: GC) has an 80% correlation with Shanghai Futures Exchange gold futures. COMEX gold trading during Asian hours accounts for over 35% of global volume, facilitating arbitrage opportunities for domestic and international investors in the global gold market.

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