Risk-Off Sentiment Heating Up, Why Is Gold Running Cold Instead? | Yuesong Investment Research

Editor: Teacher Yuan, isn’t it true that when a cannon fires, gold is worth ten thousand taels? Why is it that despite all the chaos outside, gold keeps falling? Can it rise again later?

Yuan Shuiyang: That’s a very good question, and it’s also something many people have been wondering about recently. Gold has been fluctuating and trending lower since it touched around $5,600, and now it’s dropped to $5,000. If you only focus on gold itself, as a safe-haven asset, this phenomenon is indeed hard to explain. But once you consider multiple factors like the US dollar, oil prices, and interest rate cut expectations, you’ll see that the trading logic of gold has undergone a major shift. The market is no longer trading based on war fears, but on interest rates. And this is the real core factor influencing gold’s short-term movements.

Editor: Still not quite clear. Do you mean safe-haven assets are no longer effective?

Yuan Shuiyang: It’s not that safe-haven assets have lost their effectiveness. You can think of gold as a safe-haven asset, which is correct. But gold’s price is influenced by multiple variables we mentioned earlier. In the current situation, safe-haven demand is no longer the main driving force. It’s quite understandable—first, gold is an interest-free asset; it doesn’t generate interest or dividends. So, the opportunity cost of holding gold depends on market interest rates. For example, if US Treasury yields are 5%, then buying them earns you a steady 5% interest. Would you still choose to buy interest-free gold?

Editor: Of course not.

Yuan Shuiyang: Exactly. So, in the global capital markets, there’s a well-known, classic pricing rule: the dollar and gold are like a seesaw. When the dollar is strong, gold weakens. Now that the US dollar index has returned to around 100, gold naturally faces pressure.

Editor: Isn’t it said that the Federal Reserve has started a rate-cutting cycle? Why is the dollar still so strong?

Yuan Shuiyang: Look at the current situation. The Strait of Hormuz is blocked, which has directly triggered an oil supply crisis. Oil prices have surged from around $70–80 per barrel to over $100. Just from this point alone, short-term capital will flow into related sectors. It’s normal for gold to be marginalized in this context.

Back to oil prices—I mentioned in a recent video that oil is the mother of commodities. If oil prices keep rising, everything else will follow suit. Rising prices across the board will inevitably push inflation higher again. What the market is worried about now isn’t the risk of conflict itself, but whether this risk will reignite inflation. When inflation rises, the Fed will find it difficult to cut rates quickly. Currently, the 10-year US Treasury yield remains around 4.20%. Not cutting rates means high interest rates will stay longer. Under these three pressures, even if gold has safe-haven support, it can’t withstand these fundamental negative factors brought by the three mountains of pressure.

Editor: I see. So, Teacher Yuan, can gold rise back up in the future?

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