Gold backstabbed everyone.

The gold you bought is no longer what you think it is.

Author: Deep Tide TechFlow

On March 23, spot gold dropped to $4,100 during trading, wiping out the year’s gains.

Recall 57 days ago, gold was standing at a historic high of $5,600. Since then, it has fallen over 27%, marking the most severe decline since 1983.

Remember January 29, when countless analysts worldwide were shouting “Gold will break 6,000”? Instead, what followed was a slaughter.

Gold bulls, no one survived.

On Xiaohongshu, those who once posted gold bars and shared their trading achievements now are all crying out in despair.

The epicenter of the turmoil is in the Middle East. The US and Israel’s strikes on Iran have entered their 24th day. The Strait of Hormuz is closed, oil prices have broken $100, and the flames of war are intensifying.

War should push up gold prices—this is a centuries-old human instinct. But this time, that common sense failed.

Many attribute the decline to interest rates, the dollar, stop-loss sell-offs… These explanations are not wrong, but perhaps the real issue is: When a crisis hits and panic ensues, institutions are not looking to preserve value—they want liquidity.

The gold you bought is no longer what you think it is.

Is gold not a “safe-haven asset”?

Over the past three years, gold has risen from below $2,000 to a historic high, with a total increase of over 150%.

During this rise, the market has always had a ready explanation: safe haven in chaos, dollar credit collapse, emerging market central banks increasing reserves, de-dollarization… Each of these alone sounds convincing and quite uplifting.

But these explanations do not hold up against data.

In the most aggressive inflation period in the US, from 2021 to 2022, gold declined for two consecutive years. After 2023, as inflation gradually cooled, gold began to surge. There is a strong negative correlation between inflation and gold. In other words, the higher the inflation, the lower gold tends to be; the lower the inflation, the higher gold rises. “Buying gold to hedge against inflation” has been a reverse indicator over the past three years.

The Federal Reserve’s real interest rates remained high during this period, rendering the textbook rule of “high interest rates suppress gold prices” ineffective.

More intriguingly, the relationship between US stocks and gold has been almost synchronized—they rise together, fall together. One is the most typical risk asset, the other is called a safe-haven asset, yet their correlation coefficient has reached an astonishing 0.7.

These three figures tell only one story: gold is no longer part of that logical chain. It rises with US stocks, moves inversely to inflation, and exhibits characteristics of a risk asset, not a safe-haven.

The true driver

Who turned gold into this?

There has always been a genuine demand: central banks of emerging countries. After the Russia-Ukraine war, countries like Poland, Turkey, China, and Brazil began large-scale gold purchases. This is real strategic reserve demand—not speculation, but a five- or ten-year plan. But central bank gold buying is slow; it sets a bottom but is not the main force pushing gold from $2,000 to $5,626.

The push upward came from the institutional speculators following the trend.

They saw central banks buying and took it as a signal; they heard about de-dollarization and found the logic airtight; they saw gold prices rising and thought missing out was a loss. The non-commercial net long positions, representing speculative enthusiasm, continued to climb, nearing twice the historical average.

But there’s a less discussed structural issue: Most of these positions are not backed by physical gold at all.

Today’s gold market is no longer a simple logic of buying a gram and storing it in a warehouse. COMEX futures, London OTC over-the-counter markets, gold ETFs, CFDs, crypto gold contracts… all kinds of derivatives stack up. The daily trading volume of paper gold has long been dozens of times the world’s annual physical gold production. Some estimates suggest that each ounce of physical gold in the market could correspond to dozens of claims on paper. Most of these contracts are settled in cash and never touch real metal.

Futures margin requirements are typically only 6% to 8% of the contract value, meaning leverage of ten times or more is common. The London OTC market is even less transparent; uncollateralized gold positions between banks are essentially created out of thin air on paper.

This structure is fine in a bull market, where leverage amplifies gains and everyone is happy. But it also hides a ticking time bomb: once the price direction reverses, highly leveraged longs are not going to sell voluntarily—they are forced to sell. When margins are insufficient, automatic liquidation occurs, with no room for negotiation.

The pattern of bubbles always looks the same: genuine demand is the foundation, a compelling story ignites enthusiasm, chasing funds flood in, derivatives amplify the positions ten or twenty times, and finally, the price is driven to a level that cannot be supported by real demand.

This time, gold is no exception.

War as the trigger, not the culprit

Why does gold fall when war breaks out?

Because war clarifies one thing: Lower interest rates are no longer an option.

Oil prices break $100, inflation pressures reignite, and the market has priced in a 50% chance of Fed rate hikes. The core logic of gold was betting on a low-interest-rate environment—low rates make holding non-yielding gold more attractive. Once that logic flips, gold’s appeal is fundamentally broken.

The dollar index rising is a warning sign. Since the outbreak of war, the dollar index has rebounded nearly 2%, and global funds are fleeing into the dollar. As a dollar-denominated asset, gold becomes more expensive for non-US buyers.

Then, those 380,000 long positions start to run.

But this time, it’s not just active selling; more often, it’s forced liquidation. When gold prices start falling, high-leverage futures accounts hit margin calls first. Systematic forced selling pushes prices down further, triggering more liquidations—a self-reinforcing spiral. This is a different scale from retail panic selling.

Stocks and bonds are falling in tandem, forcing many investors to sell gold to raise cash; others withdraw funds from gold and shift into energy sectors. Normal liquidations, margin calls, liquidity drain—these forces converge at the same exit.

This scene is familiar. In March 2020, when the pandemic erupted, gold also plunged sharply. Back then, no one said gold’s logic was broken. Everyone understood: In a liquidity crisis, there are no safe assets—only cash. Selling anything that can be converted to cash is the priority. Gold, no matter how precious, is the asset to be sold.

The underlying mechanism now is no different from March 2020. But this time, gold carries an extra layer—it is no longer a safe haven; it is a risk asset filled with speculative positions and derivative leverage.

Liquidity crisis plus leverage liquidation—two blades falling together.

Two possible scenarios

No one can give you a clean answer on what happens next.

Those 380,000 long positions are not fully closed. Gold has fallen below $4,200. From a technical perspective, a bottom is approaching, but there’s no clear reason for reversal.

If the war stops, there could be a rebound, but that would also give an opportunity for trapped traders to exit.

If the war continues, oil prices stay high, inflation persists, and rate hike expectations remain, gold will likely fall further.

But history offers another script. During the 1979 Iranian revolution, oil prices surged, and gold did not fall. It rose from $226 to $524, reaching a historic peak in early 1980. The logic then was: Long-term high oil prices, combined with stagflation expectations, completely shattered dollar confidence. Funds had nowhere else to go but into gold. If this war drags on, inflation spirals out of control, and the Fed’s rate hikes fail to save the economy—this scenario could repeat.

JPMorgan Chase and Deutsche Bank still target $6,000 to $6,300 by year-end.

But one thing is clear: regardless of the script, this recent plunge proves that when a liquidity crisis hits, no asset is inherently immune. Gold, Bitcoin, all the stories of the past two years—when faced with the need for cash, they all have to step aside.

So, gold is now at a true crossroads. On one side, a bubble deflates, leverage unwinds, speculative funds exit, and prices continue to fall; on the other, prolonged war, stagflation expectations crushing everything, and gold re-establishing its role as the “last fortress.”

The quiet gold shops in Shui Bei, the posts on Xiaohongshu asking “Can I get my money back?”, and those who treat gold as a savings jar—these people haven’t bought the wrong assets.

They just believed in a bigger story at the wrong time. Black swans always arrive quietly when you’re most excited.

The story isn’t over yet. It’s just that we don’t know whether it will end in tragedy or continue as a sequel.