Korean stocks plunged 5% and triggered circuit breaker, Nikkei 225 fell sharply by 2000 points, gold breaks below 4430 USD

Why does gold not rise but fall in geopolitical conflicts?

Reporter | Li Yutong, Ye Maishui

Editor | Jiang Peixia

Due to escalating tensions in the Middle East, stock markets in Japan and South Korea opened sharply lower on Monday.

As of around 8:05, the Nikkei 225 index fell below 52,000 points, down more than 3% intraday.

The Korea Composite Stock Price Index (KOSPI) dropped over 4%. After the KOSPI 200 futures fell 5%, the Korea Exchange triggered the KOSPI index circuit breaker, pausing trading for 5 minutes.

In precious metals, spot gold fell below $4,430 per ounce, down 1.55% for the day. Silver declined nearly 1%.

Wang Zheng, General Manager of Shangyi Fund, believes that the safe-haven logic in geopolitical conflicts is fully overshadowed by interest rate and inflation factors. The US-Iran conflict pushed up oil prices, raising inflation expectations. Market participants are betting that the Federal Reserve will find it harder to cut interest rates, with rising real interest rates suppressing gold and silver. Safe-haven funds are flowing primarily into more liquid assets like the US dollar and US Treasuries, rather than gold. Meanwhile, funds are shifting from gold and silver into oil and energy assets that directly benefit from the conflict, causing gold and silver prices to fall instead of rise amid geopolitical tensions.

The future trend of gold prices is expected to show a “short-term pressure, medium- to long-term improvement” pattern. In the short term, high oil prices will keep the Federal Reserve’s high interest rate stance longer and strengthen the dollar, continuing to suppress gold prices. However, if the conflict persists longer, inflation and economic growth will be more significantly impacted, increasing demand for gold. In the medium to long term, as the effect of rising oil prices diminishes and inflation gradually recedes, the Fed’s rate cut cycle may be delayed but not absent. Coupled with the ongoing global de-dollarization trend, steady central bank gold purchases, and weakening dollar credit, gold prices are expected to fluctuate and rebound. [Details]

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(Disclaimer: The content of this article is for reference only and does not constitute investment advice. Investors operate at their own risk.)

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