Finance Veteran Wang | Middle East Situation Casts a Shadow Over Global Financial Markets

Why does AI ask: Why does the abnormal decline in gold prices occur amid Middle East tensions?

On the second trading day of April, which is Thursday local time, international oil prices surged sharply, with New York crude oil futures rising over 13%. Gold prices plunged again, with June gold futures on the New York Mercantile Exchange dropping nearly 4% at one point.

Since March, due to investors’ concerns over Middle East tensions, global financial markets have continued to be affected.

First, let’s talk about gold. In March, international gold prices fell by more than 11% in total, based on the rebound at the end of March. Taking London spot gold as an example, on March 2nd, it reached a high of $5,419.01 per ounce, but in just over 20 days, it dropped to $4,099.02, a maximum decline of over 24%. That is to say, if you accidentally bought gold at the high point for 10,000 yuan and sold it at the low point, you could lose up to 2,400 yuan in less than a month.

As the old saying goes, “A cannon fires, and gold rises ten thousand taels.” Many netizens are puzzled: with geopolitical tensions, shouldn’t gold be the most stable store of value? Why has it instead plummeted? Old Wang discussed with experts, and the core reason is closely related to oil prices.

In March, international oil prices soared, with New York crude oil futures rising from $67 per barrel to $101, an increase of over 50%. When oil prices rise, a chain reaction immediately follows: transportation and processing costs for daily necessities like vegetables, meat, grains, and oils increase, leading to inflation. According to research institutions in the U.S., in March, American consumers’ inflation expectations clearly rose, with the median reaching 5.2%.

To curb inflation, the market expects the Federal Reserve to delay interest rate cuts, hold rates steady, or even raise them. This causes large-scale capital inflows into more advantageous interest-earning assets, leading to a significant correction in gold prices. This is the logic behind this round of abnormal gold price decline.

The ongoing Middle East tensions for a month have also unsettled global bond and stock markets. On March 30, the International Monetary Fund issued a statement that the Middle East situation has caused yields on government bonds in major developed economies and many emerging markets to keep rising, market volatility to increase, and global stock markets to collectively decline.

Old Wang believes that the rise and fall of indices in financial markets on the surface are just numbers, but behind them are actually fluctuations in investor confidence. Under the current tense Middle East situation, the global economy is shrouded in uncertainty, making it difficult to have a true winner.

Old Wang wants to say that whether it is the stability of financial markets or ordinary people’s peaceful life, ultimately, it all depends on a peaceful environment. Only when the Middle East situation cools down quickly and peace is restored can the global economy return to normal.

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