When the market defies logic… and reveals its true rules
At a time when all predictions pointed to a rise in gold as a safe haven, the opposite occurred. With escalating geopolitical tensions, the closure of a strategic strait, and soaring oil prices, gold should have been poised for a dramatic surge. But what transpired was a genuine shock: a sharp decline exceeding 20% in a short period, resulting in significant losses for those who entered the market out of fear.

This behavior wasn’t merely random; it revealed a profound truth: markets don’t move based on the event itself, but rather on prior expectations. Investors had already anticipated the war, buying gold heavily before it began, which drove prices to historic highs exceeding $5,500 an ounce.

When the war actually broke out, there were no new buyers. Everyone was already in the market. This is where the famous saying came into play: buy the rumor, sell the news . Instead of gold rising, investors began taking profits, and the upward trend quickly turned into a crash.

Conventional belief holds that rising oil prices lead to rising gold prices, as both are linked to inflation. However, the reality is more complex. When oil prices rose, inflation also rose, but this had the opposite effect: markets began to anticipate that the Federal Reserve would not lower interest rates, and might even keep them high for an extended period.

Herein lies the problem. Gold does not generate returns, while US Treasury bonds offer a high yield in a high-interest-rate environment. Consequently, holding dollars or bonds has become more attractive than holding gold. More precisely: gold benefits from inflation only if the central bank does not aggressively combat it. If the central bank addresses inflation by raising or maintaining interest rates, gold suffers.

A large part of the gold market is not physical gold, but rather what is known as “paper gold”—that is, contracts and financial instruments that represent gold without actual ownership. In this market, leverage is widely used, with investors borrowing money to increase the size of their positions. The problem arises when prices fall. This is when “margin calls” occur, requiring investors to inject additional liquidity or face the forced liquidation of their positions.

In a single day—March 23—virtually all global markets plummeted: stocks, cryptocurrencies, and even bonds. This created immense pressure on investment portfolios, forcing funds to sell their most liquid assets…and gold was the easiest option. Not because it’s inherently bad, but because it’s readily marketable . Thus, the forced sell-offs spiraled into a chain reaction of collapses.

Over the years, central banks were the primary drivers of gold’s rise, purchasing thousands of tons as part of a strategy to reduce reliance on the dollar. However, in the current crisis, the role has shifted. Soaring oil prices have put pressure on emerging market currencies, prompting some countries to sell their gold reserves to support their currencies. Turkey is a prime example, having sold a significant portion of its reserves to provide liquidity. Russia has also continued to sell gold to finance its expenditures, while other countries are considering similar measures. This shift from buying to selling has shattered one of the market’s most fundamental pillars.

In this particular crisis, investors turned not to gold as a safe haven, but to oil. Fear of supply disruptions, especially with threats of a vital strait closure, drove investors to buy oil directly—through futures contracts and energy funds. Consequently, oil became the new “trade of fear,” drawing liquidity that would normally have flowed into gold.
Here a significant shift occurred: instead of gold moving with oil, it began to move in the opposite direction.

What happened was not due to a single factor, but rather the result of the interaction of four forces at the same moment:

This synchronization made the decline not just a correction, but a rapid and sudden collapse.

Despite everything that has happened, the long-term outlook for gold remains positive. Major banks predict a rise of up to 30% this year. However, this rise hinges on one crucial factor: US monetary policy . If the Federal Reserve begins cutting interest rates, the dollar’s appeal will weaken, and gold will rebound strongly. If interest rates remain high, gold will remain under pressure. There is also a significant factor at play: approximately $7.5 trillion is held in money market funds, waiting for an opportunity. This liquidity could quickly flow into gold if conditions change.

The biggest mistake many investors make is treating gold as a short-term speculative tool. The truth is, gold is not an asset for quick profits, but rather a long-term hedge.

Rather, it is used as a hedge against unforeseen scenarios. Smart gold investing is not based on news, but on understanding the relationship between interest rates, inflation, and global liquidity.