"Safe Haven Asset" Becomes "Risk Asset": How Investment Logic Shifts After Gold's Sharp Decline

Gold, traditionally considered a “safe-haven asset,” is unexpectedly becoming one of the most risky and volatile asset classes by 2026.

On March 23, spot gold, which had risen above $4,500, briefly fell below $4,100, erasing all its gains for the year. On the same day, the main Shanghai Gold futures contract dropped 8.62%. Just from March 16 to 20, spot gold plunged 10.52%, marking the largest weekly decline since 1983.

Historically, gold has always played a risk-hedging role during crises. Now, when the logic of “war benefits gold” is failing, many investors are saying, “I don’t understand anymore.”

Why does gold’s safe-haven property seem to be “failing”? Observers note that behind the breakdown of traditional pricing logic, institutions are mainly concerned with the dual impact of liquidity and fundamentals.

Liquidity Shock: When Gold Faces Concentrated Withdrawals

On March 24, influenced by Trump’s latest remarks on Iran, various assets that had sharply declined narrowed their losses intraday. By market close, several gold ETFs gained about 4%.

However, since the full escalation of the US-Israel-Iran conflict, gold’s decline and volatility have exceeded most major global stock indices.

Wind data shows that since Iran announced the closure of the Strait of Hormuz on March 2, until March 23 close, the spot gold (London Gold) has fallen a total of 17.45%. During the same period, the Shanghai Composite Index dropped 8.4%, the CSI 500 Index fell 14.06%, the Hang Seng Index declined 8.44%, and the Nasdaq dropped 3.18%.

Why is gold no longer “safe”? From a liquidity perspective, over the past year, gold prices once surged over 60%, reaching record highs. But during this period, the consensus and crowding in global gold trading have ranked among the most prominent across asset classes.

A recent survey by Bank of America Merrill Lynch shows that as of March 17, “long gold” remains the most crowded trade. Although the proportion of fund managers with consensus has decreased from 50% in February to 35%, gold remains the most collectively crowded asset among fund managers.

Meanwhile, as gold prices rise, professional investors’ bearish sentiment toward gold has also been building. The survey indicates that the proportion of fund managers who believe gold is overvalued has risen sharply after 2024, reaching nearly 40% in March.

Against this backdrop, when geopolitical conflicts increase safe-haven demand, the “cash is king” logic, combined with deleveraging needs and profit-taking from previous purchases, has driven concentrated selling of gold.

HuaAn Fund points out that when conflicts like US-Israel-Iran impact global asset pricing, gold’s liquidity advantage becomes a “lifeline” for multi-asset allocation. Specifically, during broad declines in global assets and margin pressure on investors, assets with the best liquidity—like gold—are often sold off to raise cash. This triggers further stop-loss and quantitative selling, creating a negative cycle that short-term pressures gold.

However, most institutions believe that after the initial emotional reaction, panic selling of gold will not last long.

HuaAn Fund notes that, based on historical experience, liquidity shocks tend to be “quick in, quick out.” Since gold’s peak at $5,600 and its recent correction, the maximum drawdown has reached 26% in 2026. Historically, during the Russia-Ukraine conflict in 2022, the maximum drawdown was 21%, and during the 2008 financial crisis, it was 30%. Therefore, from a decline perspective, the current emotional impact on gold is at an extreme level.

Interest Rate Suppression: Rate Hike Expectations Weigh on Gold

From a fundamental perspective, the reason for gold’s previous decline also includes the suppression of safe-haven logic by rising interest rates and the stronger US dollar.

As a non-yielding asset, gold prices are usually negatively correlated with real interest rates. Previously, market expectations of a rate-cut cycle by the Federal Reserve provided a core driver for gold’s rise. However, recent oil price surges have boosted global inflation expectations, putting heavy pressure on gold.

Additionally, since global oil trade is mainly priced and settled in US dollars, rising oil prices have also contributed to a stronger dollar.

Shenwan Hongyuan Securities points out that compared to past oil crises, the current oil price increase has temporarily boosted the dollar index, which is marginally negative for gold. “Before 2000, the US was a net oil importer, so rising oil prices hurt the US current account, leading to a weaker dollar and higher gold prices. After 2000, the US became a net oil exporter, so rising oil prices benefit the US current account, pushing the dollar higher and putting downward pressure on gold.”

Frankly, according to Nomura’s fund manager Ren Fei, in the short term, the US-Israel-Iran conflict has significantly pushed up oil prices, reviving inflation expectations. The Fed’s hawkish stance in the March FOMC meeting, worried about persistent inflation, led markets to anticipate possible rate hikes by 2026, greatly restricting monetary easing and impacting gold.

Bocai Fund manager Wang Xiang also notes that recent gold weakness is not just due to a weaker dollar but also reflects the broader pressure from the re-pricing of major currencies’ monetary policies.

“While the Fed, ECB, and BOE have kept interest rates unchanged this week, their outlooks on inflation and monetary policy are negative. After the hawkish signals from the ECB and BOE, gold priced in euros and pounds fell over 4% last Thursday (March 19%), indicating some funds are shifting from gold to euro and pound assets,” Wang said.

Looking ahead, Ren Fei remains optimistic about gold’s long-term trend. He points out that the US-Israel-Iran conflict has become a stalemate, with the US and allies facing difficulties in fully conquering Iran, accumulating debt and damaging credibility in the process. Moreover, with the possibility that the US may find it hard to choose between rate hikes and cuts, and may even need to cut rates to ease debt servicing and support AI development, monetary policy is unlikely to tighten.

Yongyin Fund manager Liu Tingyu also shares a similar view on rate hikes. “We believe that due to the debt service pressure, the White House is likely to delay rate cuts, so inflation pressures will ease, and the pace of rate hikes will slow. The possibility of rate cuts is small,” Liu said. “More importantly, US February non-farm payrolls were below expectations, with higher unemployment, and oil prices surged, boosting inflation. The US may enter a stagflation cycle, during which gold historically performs relatively well.”

Investment Strategies: Building Defensive Portfolios and Changing Expectations

After the rapid decline, has gold bottomed out? Most institutional views suggest that the short-term macro environment remains highly volatile, but some key variables are worth monitoring.

CITIC Securities’ latest report notes that after previous Middle East conflicts, the medium-term trend of gold prices depends on the US dollar’s credit and liquidity factors. Looking ahead, the continuation of loose liquidity and weakening dollar credit are expected to support gold prices. Additionally, valuation or stock price percentile advantages historically strengthen the upside potential of the gold sector.

Some signals supporting gold remain clear. On March 24, the World Gold Council’s global central bank head Shaokai Fan publicly stated that gold, as a hedge against de-dollarization and geopolitical risks, is expected to prompt central banks that have been absent from the market to buy this precious metal this year. He noted that in recent months, central banks of countries like Guatemala, Indonesia, and Malaysia have begun purchasing gold, possibly returning to the market after long pauses or making their first purchases.

Domestically, liquidity pressures are milder compared to international markets. Wind data shows that despite 14 commodity gold ETFs experiencing redemptions on March 23, over the entire March, the market saw a net inflow of 16.3 billion yuan into gold ETFs, with five ETFs seeing net subscriptions over 1 billion yuan and two over 3 billion yuan.

Specifically, regarding gold stocks in the A-share market, Liu Tingyu mentions that some gold mining companies’ recent annual reports show high growth. “This high growth is driven by rising gold prices and increased production capacity, leading to higher volume and prices. Based on our outlook for gold prices in 2026 and the expansion plans of many domestic gold miners, this trend is likely to continue.”

Liu notes that as of March 20, using a gold price of $4,600 per ounce, the average PE ratio of major gold miners in 2026 is only 10–16 times. Historically, the valuation median for gold miners has been around 20 times, indicating significant valuation recovery potential.

Despite ongoing short-term uncertainties, many professionals emphasize “risk management”—focusing on the core long- and medium-term logic of gold, and constructing resilient, diversified portfolios—being more meaningful than frequent speculation on short-term rises and falls.

HuaXia Fund points out that, in the long run, the fundamental logic of the gold market—such as de-dollarization, central banks’ continued gold purchases, supply-demand gaps, and geopolitical uncertainties—remains intact. In the short term, high interest rates and a strong dollar will keep volatility elevated, and it is not advisable to blindly buy the dip or redeem. If Middle East tensions persist and oil prices stay high, markets will oscillate between “safe-haven” and “high interest rates.” Investors need to adjust their expectations from a one-sided market and focus on proper position management to guard against liquidity risks.