Comprehensive analysis shows that in the context of escalating warfare, gold has recently experienced extreme market conditions such as a single-day crash (for example, a drop of up to 4.9%, even triggering a concentrated sell-off of 18 tons of gold ETFs), which is mainly driven by the following four core factors.
1. Global dollar liquidity squeeze and forced liquidation of institutions (the most core reason)
When local conflicts suddenly escalate, for example, when the market worries that the Strait of Hormuz may be blocked, investors quickly associate the risks of uncontrollable oil prices and rising global inflation, leading to market panic. In this context, the stock market often sees indiscriminate selling, and many highly leveraged hedge funds and institutional investors subsequently receive margin call notifications from brokers.
To avoid forced liquidation or even bankruptcy, these institutions must quickly raise US dollar cash. However, during periods of market panic, stocks and bonds often experience decreased liquidity, making it difficult to liquidate in a timely manner. At this time, they often have to sell the most liquid assets in the market that can be quickly realized at any time—gold.
Therefore, a rapid decline in gold at the beginning of a crisis does not mean that its safe-haven attribute is invalidated, but rather that gold is being used by institutions as a tool for quick cashing out and replenishing cash flow.
II. Historical pattern: Gold's safe-haven premium often lags
Deutsche Bank has conducted a retrospective study of the 29 major crises that have occurred globally since 1987, revealing a very counterintuitive pattern.
In these 29 crisis events, gold prices had temporarily fallen below the price on the day of the event within the first 25 trading days after the event in 24 instances, exceeding 80%.
Research indicates that the safe-haven premium driven purely by crisis sentiment typically only exists briefly during the initial few trading days, after which the market returns to rationality and experiences a correction. Gold truly reflects its safe-haven value only after one to two weeks. As the market stabilizes from the initial panic and liquidity squeeze phase, long-term safe-haven funds will gradually enter the gold market.
III. Strong US economic data drives dollar rebound
During this round of decline in gold, the United States released a series of macroeconomic data that were stronger than expected. For example, the non-manufacturing PMI growth reached a new high in over three years, and the ADP employment data also significantly exceeded market expectations.
This data has bolstered market confidence in the resilience of the US economy, while also prompting investors to reassess the Federal Reserve's future rate-cutting pace. Against this backdrop, the US dollar index has seen a structural rebound, with US treasury yields also rising in tandem.
In traditional asset pricing logic, gold typically shows a certain degree of negative correlation with the US dollar and real interest rates. When the dollar strengthens, gold, which does not generate interest income, often faces some pressure. Therefore, some funds choose to sell gold and shift towards the stock market or risk assets like cryptocurrencies.
IV. Market technical washout and high-level profit-taking
Prior to this pullback, the price of gold had rapidly risen from around $5000 to the vicinity of $5400, accumulating a large amount of floating profit. There is a common pattern in financial markets: the faster the increase, the more intense the subsequent fluctuations tend to be.
When prices are high, some institutional funds may choose to take profits periodically. At the same time, some large investment banks and market-making institutions may also use market sentiment to initiate concentrated selling at key support levels, triggering the stop-loss mechanisms of quantitative trading programs.
When a large number of programmatic trades are triggered, the market often experiences a rapid downward spiral within a short period of time. One important purpose of this type of technical decline is to clear out short-term funds that chased after high prices and used leverage, redistributing market chips.
Overall, the recent short-term plunge in gold amidst the backdrop of war is more like a phase of volatility formed by liquidity squeezes, changes in macroeconomic data, and structural market factors, rather than indicating a fundamental change in the long-term safe-haven logic of gold.