"Safe-haven assets" become "risk assets": How does the investment logic change after the gold plunge

Questions for AI: How do institutions view the return of gold’s long-term safe-haven attributes?

21st Century Business Herald Reporter Li Yuchen

Gold, traditionally regarded as a “safe-haven asset,” is unusually becoming one of the most risky and volatile asset classes in 2026.

On March 23, spot gold fell from over $4,500 to briefly dip below $4,100, erasing all gains for the year. On the same day, the Shanghai gold main contract dropped by 8.62%. From March 16 to 20, spot gold plummeted by 10.52%, marking the largest single-week decline since 1983.

In past market perceptions, gold has always played a role in hedging against risk during crises. However, now that the logic of “war favors gold” has failed, many investors are calling it “unintelligible.”

Why does gold’s safe-haven attribute appear to have “failed”? The reporter noticed that behind the breakdown of traditional pricing logic, institutions are generally focusing on the dual impacts of liquidity and fundamentals.

On March 24, influenced by Trump’s latest remarks on Iran, various assets that had sharply declined during the day narrowed their previous losses. By the end of the day, several gold ETFs had increased by approximately 4%.

However, since the full escalation of the U.S.-Israel-Iran conflict, gold’s decline and volatility have exceeded most major stock indices in the global capital market.

According to Wind data, from March 2, when Iran announced the closure of the Strait of Hormuz, to the close on March 23, spot gold (London gold spot) had a cumulative decline of 17.45%. During the same period, the Shanghai Composite Index fell by 8.4%, the CSI 500 index dropped by 14.06%, the Hang Seng Index decreased by 8.44%, and the Nasdaq index fell by 3.18%.

Why is gold no longer a “safe haven”? From the perspective of liquidity, in the past year, gold prices once surged by over 60%, reaching historic highs. However, during this process, the consensus and congestion of gold trading globally remained among the highest across various asset classes.

A recent global fund manager survey released by Bank of America Merrill Lynch showed that as of March 17 this year, “going long on gold” is still considered the most crowded trade. Although the percentage of fund managers agreeing on this has decreased from 50% in February to 35%, gold remains the asset class with the most concentrated consensus on “trading crowding” among fund managers.

At the same time, as gold prices continued to rise, the bearish sentiment among professional investors towards gold has also intensified. The aforementioned survey indicated that the proportion of fund managers believing gold is overvalued began to rise significantly after 2024, reaching nearly 40% in March of this year.

In this context, as geopolitical conflicts heighten safe-haven demand, the logic of “cash is king” leads investors to de-leverage, and combined with profit-taking from previous buying, has become a driving force behind the concentrated selling of gold.

Huazhong Fund pointed out that when the U.S.-Israel-Iran conflict impacts the global asset pricing, gold’s liquidity advantage has become a “lifeline” for multi-asset allocation. Specifically, when global assets broadly decline and investors face margin pressure, they often sell the most liquid profitable assets (gold) for cash, and the decline in gold prices triggers more stop-loss orders and quantitative selling, creating a negative cycle that ultimately puts pressure on gold in the short term.

However, currently, institutions generally believe that the panic selling of gold in the market will not persist in the long term after the emotional shock response is completed.

Huazhong Fund mentioned that historical experience shows that liquidity shocks often have the characteristic of “arriving quickly and leaving quickly.” Since this round of gold has corrected from $5,600, the maximum drawdown within 2026 has reached 26%. Referencing historical experience, the maximum drawdown during the 2022 Russia-Ukraine conflict was 21%, and during the 2008 financial crisis, it was 30%. Thus, from the perspective of drawdown, gold’s emotional shock has reached extreme levels.

From the fundamental dimension, the reasons that previously sustained gold’s downward trend also lie in the repression of safe-haven logic by interest rate logic and the stronger performance of the dollar.

As a non-yielding asset, gold’s price typically has a negative correlation with real interest rates. Previously, the market expected that the Federal Reserve would enter a rate-cutting cycle, which provided a core driving force for gold’s price increase. However, the recent surge in oil prices has raised global inflation expectations, severely pressuring gold.

At the same time, since current global oil trade is mainly priced and settled in dollars, the rise in oil prices has also, to some extent, strengthened the dollar.

Shenwan Hongyuan Securities pointed out that compared to past oil crises, the current rise in oil prices is actually short-term supportive of the dollar index, marginally bearish for gold prices: “Before 2000, the U.S. was an oil-importing country; rising oil prices were bearish for the U.S. current account, leading to a decline in the dollar index and an increase in gold prices. However, after 2000, the U.S. became an oil-exporting country; rising oil prices favor the U.S. current account, leading to an increase in the dollar index, while gold prices are pressured down.”

Zhongou Fund manager Ren Fei stated that in the short term, the U.S.-Israel-Iran conflict has significantly raised oil prices, which has revived previously declining inflation expectations. The Federal Reserve expressed a hawkish view at the March FOMC meeting, indicating concerns about recurring inflation, leading the market to expect potential interest rate hikes in 2026, which greatly restricts the degree of monetary policy easing and impacts gold.

Bosera Fund manager Wang Xiang also mentioned that gold has recently faced pressure not just from a weakening dollar, but rather from the broader impact of major currency policy repricing.

“The U.S., UK, and Eurozone central banks maintained current rates this week but expressed negative outlooks on inflation and monetary policy. After the UK and Eurozone central banks released hawkish tendencies in succession, gold priced in euros and pounds both fell over 4% last Thursday (March 19), indicating that some funds are moving from gold to euro and pound assets,” Wang Xiang stated.

However, looking ahead at gold’s long-term trend, Ren Fei remains optimistic. He pointed out that the U.S.-Israel-Iran conflict has gradually fallen into a stalemate, making it significantly difficult for the U.S. and its allies to completely conquer Iran, which instead accumulates debt in the process, affecting their own credit. Secondly, between raising and cutting interest rates, it may be difficult for the U.S. to choose to raise rates, and it may even have to cut rates to relieve government debt servicing and support AI development, making it hard to tighten monetary policy.

Yongying Fund manager Liu Tingyu also expressed a similar judgment regarding the direction of interest rates. “We believe the White House is clearly influenced by the pressure of interest payments on national debt, making the case for rate cuts evident. Thus, while inflation pressures will delay the pace of rate cuts, the possibility of turning to rate hikes is small,” Liu Tingyu stated. “What is more noteworthy is that the U.S. February non-farm payroll data fell short of expectations, the unemployment rate exceeded expectations and previous values, combined with a sharp rise in oil prices lifting inflation, the U.S. may enter a stagflation cycle, during which gold has historically performed relatively well.”

Investment Response: Build Defensive Portfolios and Change Unidirectional Expectations

After the rapid decline, has gold reached its adjustment bottom? Based on the viewpoints of multiple institutions, the short-term international macro environment remains volatile, but there are still some core variables worth grasping.

Among them, CITIC Securities’ latest research report pointed out that the mid-term trend of gold prices after various Middle Eastern conflicts still depends on dollar credit and liquidity factors. Looking ahead to this round of conflict, it is expected that the continuation of two trends—liquidity easing and dollar credit weakening—will continue to push up gold prices. At the same time, historically, valuation or price percentile advantages will enhance the rising space of the gold sector.

Some supporting signals for gold also remain clear. On March 24, Shaokai Fan, global central bank manager at the World Gold Council, publicly stated that gold, as a tool to hedge against de-dollarization and geopolitical risks, is expected to prompt previously absent central banks in the market to buy this precious metal this year. He noted that in recent months, central banks from countries like Guatemala, Indonesia, and Malaysia have begun purchasing gold, some of which may be returning to the market after a long hiatus or making their first purchases of gold.

Domestically, liquidity pressure is relatively milder compared to the international market. Wind data shows that although 14 commodity gold ETFs in the entire market experienced redemptions on March 23, if we extend the time frame to a monthly dimension, throughout March, the overall gold ETFs in the entire market still received a net inflow of 16.3 billion yuan, with five gold ETFs seeing net subscriptions exceeding 1 billion yuan and two exceeding 3 billion yuan.

Net inflow of domestic gold ETFs in March 2026 (Data source: Wind, as of March 23)

Notably, regarding gold stocks in the A-share market, Liu Tingyu also mentioned that some gold mining companies have recently disclosed annual report growth rates that also maintain high growth: “This high growth trend is attributed to the upward movement of gold prices coupled with the active expansion of gold mining companies leading to a rise in both volume and price. Based on our judgment of gold price trends in 2026 and the guidance for the expansion of many domestic gold mining companies, this logic is expected to continue to materialize.”

Liu Tingyu pointed out that as of March 20, if calculated at a gold price of $4,600 per ounce, the average PE of major gold mining companies in 2026 is only 10-16 times. Historically, gold mining companies have an average valuation of around 20 times, indicating that there is still significant room for valuation recovery.

In addition, although uncertainty still pervades the short-term market, returning to investors’ allocation operations, many professionals emphasize “risk aversion”—grasping the core logic of gold in the medium to long term and building a resilient multi-asset allocation plan is far more meaningful than frequently trading on “betting on price fluctuations.”

Huaxia Fund pointed out that in the long term, the underlying logic of the gold market, such as de-dollarization, continuous gold purchases by global central banks, existing supply-demand gaps, and geopolitical uncertainties, still exists. In the short term, gold prices are constrained by high interest rates and a strong dollar, and volatility will remain high; thus, blindly bottom-fishing or redeeming is not recommended. If the Middle Eastern situation drags on, and oil prices remain high, the market will repeatedly oscillate between “safe-haven” and “high interest rates.” Investors need to change their previous unidirectional market expectations, manage their positions well, and guard against liquidity risks.