Gold Plummets! Breaks Below $4,700, Do Safe-Haven Assets Fail Amid Geopolitical Conflicts?

Originally from: Shell Finance

Amid escalating geopolitical conflicts, traditional safe-haven asset gold is moving in the opposite direction.

On March 19, international gold prices briefly fell below the $4,700 mark. As of 4:50 PM on March 19, spot gold was quoted at $4,710 per ounce, down over 2%; COMEX gold was at $4,706 per ounce, down over 3%. On the evening of March 18, international gold prices experienced a sharp plunge, breaking through the $4,930, $4,920, and $4,900 levels consecutively.

“Safe-haven logic has not failed; rather, the primary focus has shifted to the rising valuation of the dollar,” said Tian Lihui, Dean of the Institute of Financial Development at Nankai University. From a deeper perspective, this is a typical “oil price backlash on gold” transmission chain: war pushes up oil prices, which fuels inflation; inflation suppresses rate cut expectations, ultimately making gold a victim of high-interest-rate environments.

Are safe-haven assets failing? The strengthening of the dollar has suppressed gold

In early March, spot gold prices briefly surged above $5,400 per ounce during trading, but then significantly retreated, overall oscillating downward. On March 18, international gold prices fell below $4,900 per ounce, closing at $4,813.5, a decline of 3.86%; COMEX gold closed at $4,823.9, down 3.68%.

On March 19, international gold prices continued to fluctuate downward. The A-share gold sector was hit hard, with Zijin Mining, China Gold, and Shandong Gold falling over 7%, and Zhaojin Gold dropping more than 6% by the close.

As gold prices decline internationally, domestic gold jewelry prices have also fallen for several days. On March 19, Chow Tai Fook’s pure gold jewelry was quoted at 1,503 yuan per gram, Chow Sang Sang at 1,492 yuan per gram, and China Gold at 1,489 yuan per gram.

Is gold, as a safe-haven asset, failing? Tian Lihui stated that attacks on Iran’s energy facilities have disrupted shipping through the Strait of Hormuz, causing oil prices to soar and directly boosting inflation expectations. The market has realized that the Federal Reserve is unlikely to cut rates, and some institutions are even reassessing the possibility of rate hikes. The dollar index rebounded, U.S. Treasury yields surged, and the cost of holding gold—an asset with zero interest—shot up sharply, leading to capital selling gold and shifting into the dollar.

“Although geopolitical conflicts persist, the market’s focus has shifted to macro liquidity and policy game dynamics, with safe-haven logic giving way to interest rate and dollar logic,” Tian Lihui said. The current market is essentially a re-pricing of currency trends.

Shenwan Hongyuan Futures research report believes that the sharp correction in gold amid escalating geopolitical conflicts is driven by multiple factors: a rebound in real interest rates due to rate cut expectations adjustments, liquidity tightening caused by decreased risk appetite, and the high gold-oil ratio correction.

Cinda Futures research report points out that the core driver of gold’s current trend is the upward movement of energy prices constraining interest rate expectations. As conflicts in the Middle East persist, crude oil prices remain high, with Brent crude futures previously stable above $100, significantly raising concerns about inflation stickiness. In this context, market expectations for inflation to decline have become more cautious, weakening the pricing of rate cuts and causing the dollar to strengthen temporarily, which suppresses gold.

Tian Lihui noted, “The logic of ‘inflation backlash on gold’ will persist throughout the conflict period, depending on two variables: the duration of the Strait of Hormuz disruption and the Federal Reserve’s policy response. As long as energy supply disruptions continue and oil prices stay high, rate cut expectations will remain fragile, and gold will continue to face pressure.”

Is this a short-term correction or a reversal of the bull market? Experts recommend “gradual positioning and long-term holding.”

“This decline is characterized as a deep correction within a bull market rather than a trend reversal,” Tian Lihui said. The medium-term support for gold remains solid, with the Federal Reserve still in a rate-cutting cycle; the downward trend in real interest rates will eventually resume. Geopolitical fragmentation is irreversible, and gold’s ultimate safe-haven value remains intact. Central banks worldwide continue to buy gold, forming a strong bottom. Once the correction completes, it will be a good window for medium- to long-term allocation.

Tian Lihui predicts that by 2026, gold trading logic will shift through “three phases”: from now until the first half of the year, the focus is on “inflation and interest rate battles,” driven by oil prices and Fed policies; in the second half and into Q3, the market may switch to “stagflation trading,” as sustained high oil prices hinder growth and lead to reassessment of gold’s safe-haven value; if conflicts ease in Q4, the market will revert to “rate cut expectation trading,” with falling real interest rates supporting gold prices.

“Looking ahead, in the short term, gold remains in a phase of intertwined geopolitical risks and macro interest rate expectations. The Middle East conflict has yet to show clear signs of easing, meaning safe-haven factors may fluctuate; meanwhile, high energy prices continue to disturb inflation and policy paths, putting downward pressure on gold. With mixed factors at play, the market is unlikely to form a clear trend, and expect mainly range-bound oscillations,” the Cinda Futures report states.

The report emphasizes that attention should be paid to this week’s interest rate decisions and Powell’s speeches, as hawkish signals or increased focus on inflation could pressure gold prices; conversely, concerns about economic or risk events could ease downward pressure.

CITIC Securities metals analyst Tu Yao Ting believes that after each Middle East conflict, the medium-term trend of gold depends on dollar credit and liquidity factors. Looking at this round of conflict, the continuation of loose liquidity and weakening dollar credit are expected to keep supporting gold prices.

Shenwan Hongyuan Futures report indicates that President Trump’s signals of a ceasefire and Iran’s conditions for a truce, along with falling crude oil prices as geopolitical risks subside, will ease inflationary pressures and the tightening of monetary policy. Market expectations for Fed rate cuts will rise again, and the upward movement of U.S. Treasury yields and the dollar index will weaken, directly alleviating the main rate constraints on gold.

Although signs of easing conflict exist, Middle East geopolitical uncertainties remain, and the Fed’s high-rate stance persists. Global risk aversion continues, and gold’s dual attributes as a safe haven and inflation hedge will re-emerge. Coupled with profit-taking from previous gains due to oil’s surge, the decline in oil prices and policy expectation adjustments will become the main drivers of gold’s rebound, leading to a volatile upward trend.

Tian Lihui recommends that ordinary investors adopt a “allocation mindset” rather than a “trading mindset,” employing a “gradual positioning and long-term holding” strategy. Once the correction completes, it will open a window for medium- to long-term allocation, such as buying physical gold or gold ETFs on dips, avoiding leverage trading, and keeping holdings at 5%-10% of total assets.