Ignore the Turkish "gold selling" noise; liquidity disruptions are nearing the end, and gold's safe-haven return is imminent!

Middle East conflict continues to intensify, oil prices remain high, and gold has experienced an abnormal sharp decline amid this round of geopolitical tensions.
However, this unusual performance does not signify a collapse of fundamental logic but stems from short-term liquidity disruptions, which are now approaching their end.

Zhejiang Securities pointed out in their latest monthly report that, whether geopolitical tensions escalate or de-escalate, gold is expected to benefit. This “dual benefit” logic gives it rare allocation value in the current chaotic market environment.

Specifically, the market previously followed the trading logic of “rising oil prices → retreat of rate cut expectations,” but the report notes that if oil prices stay high for more than a quarter, demand destruction effects will begin to appear, and economic fundamentals will weaken significantly.
In other words, the higher the oil price and the greater the recession risk, the more likely the rate cut expectations will rise.
The current conflict has lasted a month, and the market’s turning point from “rate hike trading” to “recession trading” may be imminent.

Meanwhile, the trend of global central banks increasing their gold holdings remains unchanged.
Turkey’s gold sales are just an isolated case, as its energy dependence on imports is high, its gold reserves constitute a large proportion, and it holds very few U.S. Treasuries—these are essentially forced financing for oil imports.
Major European countries have long maintained stable gold reserves and serve as a credit backing for the euro, lacking motivation to reduce holdings.

Additionally, improvements in holdings structure also create conditions for gold to revert to fundamental valuation.
Currently, COMEX gold’s non-commercial long positions and retail holdings have both significantly declined compared to previous levels, indicating that the previous market-driven disruptions suppressing gold are nearing their end.

Why did gold “fail” during geopolitical conflicts? Liquidity is the real culprit

Historically, the loss of gold’s safe-haven attributes often occurs during liquidity crises, such as the 2008 financial crisis and March 2020.
In this round of Middle East conflict, the initial sharp decline in gold also has the same underlying logic, driven by liquidity disruptions at three levels:

First, soaring oil prices reverse rate cut expectations, leading to a global liquidity contraction.
As oil prices surged rapidly, expectations for rate cuts this year quickly receded, and market expectations even shifted toward rate hikes around March 20, directly tightening the global liquidity environment and suppressing gold.

Second, the expansion of multi-asset strategies and systemic deleveraging during tail risk events.
From January 2025 to March 2026, global assets surged, promoting rapid development of multi-asset strategies (FOF). Data shows that from January 2025 to March 2026, equity fund shares increased by 13.6%, while FOF fund shares soared by 111.2%.
When tail risks materialize, systemic deleveraging in multi-asset strategies causes synchronized declines across different asset classes, an abnormal phenomenon.

Third, retail investors chase gains and sell off during downturns, amplifying liquidity disruptions.
Gold’s previous stellar performance attracted massive retail inflows, but during the March pullback, large outflows occurred.
Data indicates that COMEX gold futures non-reporting long positions and SPDR Gold ETF holdings both fell sharply, with retail investors’ chasing and panicking behaviors further magnifying liquidity disruptions in gold.

Turkey’s gold sales are an isolated case; the trend of central banks buying gold worldwide remains unchanged

Recently, Turkey’s central bank announced gold sales, sparking concerns about a reversal in central bank gold purchase logic.
The report believes this concern is overinterpreted; Turkey’s actions have highly specific background.

According to Reuters, data from Thursday shows Turkey’s gold reserves plummeted by over 118 tons in the past two weeks, worth nearly $20 billion.
Last week alone, reserves dropped by 69.1 tons to 702.5 tons—the largest weekly decline since at least 2013.
Three banking industry sources estimate that in just one week, about 26 tons of gold were directly sold, with an additional 42 tons used in swap transactions; the week before, reserves decreased by 49.3 tons.

Turkey’s energy needs are highly dependent on imports, and rising oil prices force it to buy more dollars for energy.
Meanwhile, gold accounts for nearly half of Turkey’s official reserves, with very few U.S. Treasuries—meaning it cannot obtain dollars by selling Treasuries and can only sell gold.

Other countries with high gold reserves and low energy self-sufficiency are mainly in Europe.
Germany’s gold accounts for 82% of official reserves, France 80%, Italy 79%.
However, European countries still have relatively ample energy reserves, and gold also functions as a credit backing for the euro.

Data shows that in recent years, the scale of gold reserves in Germany, France, Italy, and others has remained almost unchanged.
In the absence of obvious liquidity pressures, the probability of European countries selling gold in the future remains low, and the long-term trend of central bank gold purchases will not reverse due to Turkey’s isolated case.

Market trading paradigm may shift, and gold will benefit from a dual-benefit logic

The previous market trading paradigm was: rising oil prices equal to a retreat in rate cut expectations, meaning the market believed the Fed’s focus was on inflation.
In March, the US manufacturing PMI reached 52.7, a recent high, and under strong fundamentals, this trading logic was relatively smooth.

However, if oil prices stay high for more than a quarter, demand destruction effects may begin to appear, and economic fundamentals will weaken significantly.
At that point, higher oil prices and greater recession risks could actually lead to increased expectations of rate cuts from the Fed.
Considering that the conflict has lasted a month and market expectations often lead fundamentals, if oil prices remain high, the market’s turning point from “rate hike” to “recession” trading may be near.

This creates a “dual benefit” logic for gold:

• If geopolitical tensions escalate further: The market shifts to recession trading, rate cut expectations strengthen, and gold benefits;
• If tensions ease: Oil prices fall, rate cut expectations also strengthen, and gold benefits as well.

In addition, after previous declines, the crowded positioning in gold may have been sufficiently released.
As of March 24, COMEX non-commercial long positions (roughly representing institutions) are at the 25.3% percentile since 2020, and non-reporting positions (roughly retail) are at the 79.9% percentile, both significantly lower than before.

The improvement in positioning structure suggests that the liquidity disruptions previously suppressing gold are nearing their end, and gold pricing is expected to gradually revert to fundamental logic.