Xiachun: When conflicts break out, gold first falls then rises—that's the pattern.

“Ask If You Don’t Know” producer Zhang Bu Hui: Gold is a safe-haven asset during wartime, so why does it fall when war breaks out?

Dr. Xia Chun: For those that have risen a lot, they fall a lot. Remember this point: after the 2008 financial crisis, gold fell. Another example is the 2022 Russia-Ukraine war, and gold also fell then. Although gold has some safe-haven components, if it has risen significantly beforehand, people tend to treat it as a highly liquid asset, selling it to meet other position needs. Simply put, if now there are only three people in the market, and one person has a family issue and sells their assets, then this hedge fund might step in to buy. It could suffer losses, and once it does, there are individuals behind the hedge fund lending it money, usually investment banks. After losing money, they will demand repayment immediately. All financial institutions have strict risk controls, unlike retail investors who hold on and are reluctant to cut losses. Financial institutions have daily stop-loss limits, so they can only sell their most profitable holdings first. Therefore, during such times, gold is often sold first because in recent years, gold has been the most appreciated asset. This is a trading logic.

“Ask If You Don’t Know” producer Zhang Bu Hui: So, according to this logic, does that mean in future geopolitical conflicts or wars, gold will fall?

Dr. Xia Chun: Yes, it often falls first, then rises. Now I see various videos where people don’t really understand the trading logic; they prefer to talk about some so-called macro logic. The common explanation is that the US is raising interest rates, so gold becomes less attractive relative to the dollar, and people might buy US bonds instead. But in reality, that’s not the case. We see bonds being sold off too, meaning the common explanations are incorrect. Historically, gold has risen both when the US raises rates and when it cuts rates. So I personally believe the reason is: the more it rises, the more it falls; the more it falls, the more it rises. At this point, everyone should believe that gold will rebound next. Currently, we all think gold is on a big rally, but the data we see usually measures over weeks or months. Today, we are experiencing its daily declines. In other words, if you look at gold over three weeks, in the future, that might be recorded as a month’s data in historical databases. That’s why people always think that a big gunshot means gold will skyrocket. But that phrase isn’t precise to the day. If you measure it weekly or monthly, it’s correct, but if you look at it daily, it might have also been falling initially.