Why Did Inflation Expectations Rise and Suppress Gold’s Safe-Haven Function?

For a long time, gold has been recognized by global capital markets as a core safe-haven asset for hedging geopolitical risks and resisting market turbulence, thanks to its scarcity, lack of sovereign credit risk, and low correlation with risk assets. The saying “buy gold in troubled times” has been a classic investment consensus for decades among investors worldwide.

However, amid the ongoing escalation of Middle Eastern geopolitical conflicts and regional tensions, gold’s traditional safe-haven role has experienced a significant phase of failure: recently, international gold prices not only failed to rise as expected due to safe-haven demand, but instead plunged sharply against the trend, breaking market perceptions of gold’s safe-haven attributes.

In response, many investors are puzzled: Is gold’s safe-haven property only temporarily diminished, or has it fundamentally changed? What will be the core pricing logic and future trend of gold?

To explore these questions, on April 2, Huaxia Fund launched the second episode of its in-depth investment research interview series, DeepTalk, inviting renowned macroeconomist Pan Xiangdong, China Investment Business Director of the World Gold Council Yu Mingmin, and Huaxia Gold ETF fund manager Rong Ying, to engage in an in-depth discussion on the core topic: “Geopolitical Conflict vs. Gold Correction: Safe-Haven Failure or Rebalancing Opportunity?” They analyze the underlying logic behind gold price fluctuations, clarify misconceptions about gold investment, and provide professional and practical ideas for ordinary investors on gold allocation.

Now, let’s take a look at the core viewpoints of these experts.

Why Has Gold’s Safe-Haven Function Failed Temporarily?

Currently, the geopolitical situation in the Middle East remains tense, with uncertainties around escalation still fermenting. According to the classic logic of “buy gold in troubled times,” rising geopolitical risks should be the main driver pushing gold, a zero-yield, sovereign-credit-risk-free asset, higher. However, recent gold price movements have been the opposite.

Since March, international gold prices have fallen by over 15%. Especially on March 23, concerns peaked over U.S.-Israel military strikes on Iran and the escalation of regional conflicts. Gold, which should have been supported by safe-haven demand, once plunged more than 8% intraday.

Faced with this “counterintuitive” phenomenon, the guests on this episode of DeepTalk explained the true logic behind the “temporary decline of gold’s safe-haven property” from multiple perspectives.

Pan Xiangdong believes that the main reason for gold’s recent failure to reflect safe-haven effects is that: Middle Eastern conflicts pushed up oil prices, which in turn raised inflation expectations; market expectations of Fed rate hikes increased, and real interest rates rose—since gold is a zero-yield asset, the opportunity cost of holding it increased, leading funds to flow into the dollar and other interest-bearing assets, directly suppressing gold prices.

Additionally, he pointed out three other pressures facing gold: First, in wartime, Middle Eastern oil-producing countries sell gold to obtain more liquid cash, accelerating the decline in gold prices; second, oil export disruptions pressure fiscal revenues, prompting relevant countries to sell foreign exchange reserves to make up for budget gaps, and gold, which has seen the largest gains in recent years, naturally becomes a target; third, the rapid rise in gold prices previously attracted a large amount of speculative capital, and after the trend reversed, speculators exited en masse, further increasing short-term volatility.

Regarding how investors should position amid intensified gold fluctuations, Rong Ying said: “If it’s a structural failure, then the long-term logic of gold allocation needs to be reconsidered; but if it’s just short-term suppression, it might instead create a rebalancing window. I personally lean toward the latter.”

Yu Mingmin added that it’s necessary to distinguish between “liquidity crisis” and “liquidity preference”—this recent decline in gold resembles a voluntary choice of liquidity preference rather than a traditional liquidity crisis. For ordinary investors’ gold strategies, he believes that directly copying central bank operations is difficult, but they can learn from the underlying idea of long-term holding; participating through dollar-cost averaging is an effective approach suitable for retail investors.

The consensus among the guests is: although short-term liquidity shocks and hawkish Fed expectations temporarily suppress gold’s safe-haven role, geopolitical conflicts have not changed the core logic of central banks continuously increasing their gold holdings; for ordinary investors, holding gold remains an effective way to hedge against currency depreciation and inflation pressures.

The Mission of DeepTalk

In fact, not only gold, but after the outbreak of conflicts in the Middle East, the volatility of many major asset classes worldwide has generally increased. Expectations of policy shifts due to the Fed’s leadership change have further triggered concerns about tightening global liquidity, and market panic sentiments have accelerated; at the same time, geopolitical risks cause risk appetite to shrink rapidly, especially impacting inflation-sensitive markets like Japan and South Korea. As shown in the chart below, since March, nearly all global capital markets have experienced declines.

In such an environment, how can ordinary investors ignore short-term noise, return to the essence of investing, grasp the core market trends, and avoid making irrational decisions out of confusion?

To help investors truly understand the underlying logic behind asset fluctuations and turn professional research results into accessible, practical investment references, Huaxia Fund has created the in-depth research interview series DeepTalk.

This series focuses on multiple asset classes, perspectives, and long-term cycles. Each episode highlights hot sectors and market hotspots of investor concern, inviting heavyweight guests from industry, academia, research, policy, and business fields. They analyze the real state of industries and the cutting-edge logic of investment in detail, connecting industry fundamentals with investment frontiers, and building a professional, multi-dimensional decision-making framework for ordinary investors.

The essence of public funds is “trusteeship and management on behalf of others.” A truly excellent public fund should enable investors to enjoy tangible wealth growth and long-term real returns. To address the industry’s long-standing issue of “funds making money but retail investors not,” investor education is an essential core component—only by helping investors see through market noise, clarify investment logic, and establish correct investment cognition can they avoid irrational behaviors like chasing gains and selling in panic, ultimately sharing in the growth dividends of the asset management industry.

Huaxia Fund’s DeepTalk series is an innovative practice in investor education by leading asset management firms: through in-depth dialogues, transforming the firm’s profound professional research into market analysis that ordinary investors can understand, learn from, and apply. It breaks down the cognitive barriers between industry frontlines and investment frontiers, and builds a rational decision-making framework for investors, helping them select suitable products and make better investment choices in complex markets—returning to the original purpose of “putting investors’ interests first.”

As a leading domestic asset management firm, Huaxia Fund has always been at the forefront of professional research dissemination and investor support. In 2025, Huaxia Fund pioneered in the podcast space with its “Dafang Talks Money” series, which, with solid research core and investor-oriented content, has become a benchmark for professional research dissemination in the industry. The DeepTalk series is another major innovation in Huaxia’s research content ecosystem.

DeepTalk continues Huaxia Fund’s tradition of professional research, adapted into the current trend of video podcasts, breaking the barriers of traditional complex research content, and delivering professional, in-depth institutional insights in a more vivid, intuitive, and perceptible way. From deep analysis of hot sectors, to macro market outlooks, to long-term investment philosophies, DeepTalk always centers on investors’ real needs, providing high-value professional references for market participants’ observation and decision-making, helping investors seize long-term opportunities and achieve steady wealth growth amid a volatile environment.

Huaxia Fund states that at the start of this new cycle characterized by complex global macro environments and increasing asset volatility, it will continue to uphold the core of asset management, deepen professional research capabilities, and expand innovative services: on one hand, leveraging deep research accumulation to develop quality products suited to different market conditions and investor needs, safeguarding long-term returns; on the other hand, continuously enriching DeepTalk—the core platform for research dialogue and investor education—with more lively content and solid insights, transmitting the value of rational investing, helping more investors cut through market noise, understand the true logic behind asset price fluctuations, and seize long-term opportunities in a complex environment—ultimately achieving steady wealth growth and long-term inheritance.

Author’s note: Personal opinions are for reference only.