Has the safe-haven property of gold changed?

How does tightening liquidity lead to the simultaneous decline of gold and U.S. stocks?

Since March, the conflict between the U.S. and Iran has continued. From a safe-haven perspective, gold is generally expected to serve as a safe-haven asset during such times. However, since March, gold has repeatedly fallen below several key integer levels, with a cumulative drop exceeding 20% this month (Wind, as of 2026.3.23), plunging alongside U.S. stocks and Japanese stocks. Even market concerns about the Federal Reserve raising interest rates have been steadily escalating. So why has the gold price performed so weakly recently?

First, we need to correct two “cognitive misconceptions.”**

1. Geopolitical stimuli only have a short-term effect

Although historically, geopolitical crises often lead to short-term increases in gold prices, including the current U.S.-Iran conflict, gold prices did rise nearly 2% after the U.S.-Israel launched military strikes against Iran on February 28 this year. However, increases driven purely by safe-haven demand are usually short-lived and fragile. Once the market begins to assess the long-term impacts of the conflict, the focus shifts to broader macroeconomic and policy implications.

For example, in the earlier Russia-Ukraine conflict, when the conflict first erupted at the end of February 2022, gold prices also rose. However, they subsequently fell due to factors such as the Federal Reserve’s interest rate hikes. It wasn’t until the pricing logic shifted towards interest rate cuts that the overall downward trend genuinely reversed.

Chart: The impact of geopolitical conflicts on gold prices

Data source: Wind, statistical period 2021.3.15-2023.1.30.

Therefore, although gold has safe-haven attributes, the scenarios driven purely by geopolitical risks are often impulsive. Additionally, since gold had already experienced a prolonged rally prior to this conflict, the marginal contribution from the conflict is likely to be more limited.

2. Interest rate hikes are not the core reason either

Since geopolitical crises are insufficient to provide sustained positive effects, does the recent decline in gold stem from the interest rate hike logic spurred by rising oil prices?

We know that in the past, the real yields on U.S. Treasury bonds (TIPS) have typically played a key role in pricing gold, with the two exhibiting a significant negative correlation over a long period. Changes in gold prices often accompany significant fluctuations in TIPS.

Chart: The negative correlation between U.S. Treasury real yields (TIPS) and gold prices

Data source: Wind, statistical period 2015.1.1-2021.11.30.

However, after 2022, due to factors such as de-dollarization and global central banks purchasing gold, the trend between TIPS and gold prices has essentially decoupled. Even before this decline, significant fluctuations in TIPS had never impacted gold prices. Although TIPS have risen about 30 basis points from their lows, this increase is clearly insufficient to explain the 20% drop in gold prices.

Chart: The divergence between U.S. Treasury real yields (TIPS) and gold prices

Data source: Wind, statistical period 2024.7.1-2026.3.23.

Moreover, although oil prices have risen significantly due to the U.S.-Iran conflict, inflation expectations have not notably increased. The Federal Reserve’s stance is also clear; if inflation expectations remain stable, then energy shocks are not a priority for monetary policy. Coupled with the current signs of weakness in the U.S. labor market, the possibility of the Federal Reserve actually implementing interest rate hikes is very low.

Chart: U.S. inflation expectations

Data source: Wind, statistical period 2018.8.4-2026.3.20.

3. Insufficient liquidity may be the main reason for the current decline

In fact, this decline has a unique phenomenon. Taking gold and U.S. stocks as examples, although both have been declining recently, an analysis of their intraday movements reveals that their trends are very synchronous even during overlapping trading hours, almost rising and falling together. This is quite unusual for two completely different asset classes.

Chart: Recent trends of gold and U.S. stocks are roughly aligned

Data source: Wind.

The reason for this phenomenon is almost solely due to liquidity issues connecting the two assets, creating a relationship between them.

Specifically, based on the previous macro environment and the safe-haven attributes of gold, many funds holding risk assets (such as stocks) will also hold a certain proportion of gold for hedging protection. This is perfectly normal, but if the hedge positions become too crowded, it can lead to two problems:

First, when systemic risks arise, in addition to reducing positions in risk assets, it is natural to also reduce positions in hedge assets to maintain stability in the hedging relationship within the portfolio, which causes their buy-sell relationships to move in the same direction.

Second, for some long-term funds, when one asset class in the portfolio declines, they are more motivated to sell off other profitable assets to offset the losses from the declining asset.

If we segment the trading hours of London gold spot transactions, dividing a day’s trading time into Asian trading hours (the active trading period from 7 AM to 3 PM) and European-American trading hours (the active trading period from 3 PM to 6 AM the next day), then reconnect the gold prices during their respective trading periods, we find that the declines in gold since March have almost all occurred during the trading hours of the European-American market, while during the Asian market’s opening hours, gold has not shown any significant downward trend. This indirectly indicates that a large amount of capital in the European-American market is actively selling gold at night.

Chart: Asian trading hours & European-American trading hours for gold trends

Data source: Wind, statistical period 2026.2.12-2026.3.19.

In summary, the core reason for the recent decline in gold prices is not a weakening of the fundamentals but rather a result of tightening liquidity, which has led many funds to simultaneously reduce their positions in gold. Therefore, it is highly likely that the true stabilization of gold in the short term will coincide with the stabilization of risk assets.

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This article is contributed by the team

The Huafu FOF team: Focused on global asset research, using tools such as ETFs and other funds, and striving to create a smooth upward net value curve for investors through diversified asset allocation.

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