Oil Prices Surge to $120 While Gold Plunges 3%: Safe-Haven Assets Failing? Analysts Say This Is Just a Bull Market Correction

TradingKey - As the Middle East conflict enters its second week, global markets are experiencing intense volatility. On Monday, international oil prices ( USOIL) surged to nearly $120 per barrel, while gold prices ( XAUUSD) once plummeted 3% to $5,015 per ounce, marking its first weekly decline in more than a month before the losses narrowed slightly.

The spike in oil prices served as the catalyst for a market-wide chain reaction.

Shipping disruptions in the Strait of Hormuz, successive attacks on Middle Eastern energy infrastructure, and the gradual shutdown of crude production by oil producers like Iraq collectively pushed Brent crude prices up 29% to $119.5 per barrel—the largest single-day gain since April 2020. WTI crude prices also rose by 31%.

Warren Patterson, Head of Commodities Strategy at ING, noted that market sentiment has shifted from initial optimism to fears of a prolonged conflict, stating, "As long as oil cannot be shipped through the Strait of Hormuz, prices will only continue to rise."

Under the impact of oil prices breaking $100, U.S. inflation concerns have intensified sharply, completely reversing market expectations for Federal Reserve rate cuts.

According to the CME Group's FedWatch Tool, investors expect the Federal Reserve to keep interest rates unchanged at its March meeting. The probability of rates remaining steady in June has risen from less than 43% at the onset of the conflict to over 51%.

Hebe Chen, an analyst at Melbourne-based Vantage Markets, stated that the pullback in gold prices is essentially the result of the "inflation monster driving a stronger U.S. dollar": "Oil prices hitting $100 triggered a chain reaction. The energy shock pushed up inflation expectations, which in turn strengthened the dollar and ultimately suppressed gold prices."

As a non-interest-bearing asset, gold's attractiveness naturally wanes during a cycle of rising interest rates. Compounded by the U.S. dollar reclaiming its "safe-haven throne" during this conflict, the pressure on gold prices has become even more pronounced.

Nikos Tzabouras, Senior Market Analyst at Tradu.com, pointed out that in this wave of risk aversion, the U.S. dollar is "outshining gold as the preferred safe-haven asset." Coupled with inflation risks potentially preventing Fed rate cuts, gold's appeal has been further weakened.

In addition, deep corrections in global stock markets have triggered a liquidity crisis. Institutions have been selling various assets, including gold, to meet margin calls, which has also exacerbated short-term volatility in gold prices.

Christopher Wong, a strategist at OCBC Bank, believes this selling is driven more by short-term liquidity needs: "Once this phase passes, geopolitical uncertainty will still support safe-haven buying of gold."

Remaining Bullish on Gold

Veteran analysts who have navigated multiple gold bull and bear cycles remain steadfastly optimistic about future price trends, generally viewing the current pullback as a healthy consolidation within a bull market.

Their core reasoning is that paper losses from short-term fluctuations are not critical; what truly matters is whether the underlying drivers that pushed gold to record highs still exist—and current evidence largely suggests these support factors remain intact.

In their latest report, Saxo Bank analysts noted that the current rise in oil prices is essentially a supply-side shock rather than demand-driven, which undoubtedly increases the risk of the global economy falling into stagflation and may eventually force central banks to step in to support the economy. They also emphasized that while the market deleveraging process and a stronger dollar may weigh on gold in the short term, they have not shaken the fundamental logic of investors flocking to hard assets in recent years.

From a fundamental perspective, gold prices have surged more than 100% cumulatively over the past 12 months. Profit-taking in the short term is a normal market phenomenon.

On the technical side, gold prices are still trading above the 50-day ($4,884/oz) and 200-day ($4,023/oz) moving averages. These two averages are viewed by the market as key indicators of whether the trend remains intact, and current prices are still within an upward channel.

Hiren Chandaria, Managing Director at Money Metals Exchange, stated that given the excessive gains in gold prices earlier and the concentration of market positions, a significant short-term pullback is not surprising. However, with macro and structural support factors remaining strong, dips in gold prices often attract new buyers, thereby continuing the overall recovery trend.

In addition, the World Gold Council predicts that central bank gold demand will continue to grow through 2026. Countries such as China, Russia, India, Turkey, and Poland continue to increase their gold reserves, and an increasing number of transactions are bypassing Western exchanges, providing solid underlying support for gold prices.

However, some analysts warn that a volatile macroeconomic environment could pose risks to gold prices.

Goldman Sachs ( GS) analysts noted that if global policy uncertainty eases or if the Federal Reserve shifts to a more hawkish stance, it could dampen private-sector demand for gold.