The higher oil prices climb, the more appealing gold gets? Hold on! Gold may also face a “tale of two extremes” this time

As geopolitical risks heat up and international oil prices fluctuate at elevated levels, many people’s first reaction is: Buy gold now! After all, when the world is unsettled, gold seems to offer a sense of security, making it a “time-tested safe haven” in financial markets.

But this time, I’d suggest not rushing to give gold the prize.

Rising oil prices could indeed benefit gold. On the one hand, escalating geopolitical conflicts increase uncertainty, and safe-haven funds may seek out gold; on the other, higher energy prices fuel inflation expectations, which could also make gold more attractive as an inflation hedge. Sounds like a sure win, doesn’t it? Don’t forget: there’s no such thing as a free lunch in the market.

The real trouble lies with interest rates. If oil prices stay high and keep U.S. inflation from coming down, the Federal Reserve may delay rate cuts or even maintain a relatively tight monetary policy. A stronger dollar and higher Treasury yields could put pressure on gold, which pays no interest.

That creates an interesting situation: geopolitical risks hand gold a hot cup of coffee, while high interest rates turn around and splash it with cold water. Which way gold goes depends on which force is stronger.

My view is that in the short term, gold may hold up better than U.S. stocks amid safe-haven sentiment, but it may not keep rising all the way. If the market starts pricing in higher interest rates and a stronger dollar, gold could still fluctuate and retreat.

So don’t treat gold as a safe that only goes up. What really deserves attention is the dollar’s trajectory, real interest rates, central bank policy, and whether safe-haven demand persists.

Gold can be a safe haven, but it’s not an automatic cash machine. Check the winds before buying—don’t wait until the waves hit to discover you bought a ticket for a ship, not a lifeboat.
$MU

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