Intensifying US-Israel-Iran conflict and escalating tensions in the Strait of Hormuz have led to significant losses for two traditional safe-haven assets—gold and government bonds—instead of causing them to appreciate.

According to reports, on March 21, the US President demanded on a social media platform that Iran fully open the Strait of Hormuz within 48 hours, threatening otherwise to strike and destroy various power plants in Iran, starting with the largest one.

On March 23, after a drop of over 10% the previous week, London spot gold successively fell through five key levels at $4,500, $4,400, $4,300, $4,200, and $4,100 per ounce, hitting a low of $4,098 per ounce, down more than 8.7% for the day. As of the latest update, spot gold was trading at $4,267.39 per ounce, still down nearly 5%. US and European government bonds, also considered safe havens, have recently faced selling pressure, leading to rising yields.

Why have both safe-haven assets failed? The answer may lie not in risk, but in oil. While geopolitical crises typically enhance gold's appeal, the current market environment has complicated its safe-haven logic.

Since the conflict began on February 28, the spot gold price has fallen by $1,040, a cumulative decline of nearly 20%, wiping out all gains made since the start of the year, resulting in an approximate 1% loss year-to-date.

An analyst pointed out that although gold's inherent safe-haven属性 remains unchanged, the US-Israel-Iran conflict has driven up oil prices and created a series of derivative effects, causing short-term negative impacts on gold's price logic.

Firstly, surging oil prices have significantly increased inflation expectations in major global economies, leading to a sharp narrowing of expectations for Federal Reserve interest rate cuts. Reduced rate-cut expectations have caused the US dollar to strengthen, and the dollar and gold typically exhibit a seesaw relationship. On March 23, the US dollar index continued its rise, climbing back above 100, having gained over 2% since March.

One of the primary reasons for gold's previous significant price increase was the substantial rise in expectations for Fed rate cuts. This logic has reversed following the outbreak of the Iran conflict.

Current market trading is not following the simple logic of 'declining risk appetite equals rising gold prices.' Instead, it resembles a repricing of inflation driven by an energy shock. Higher oil prices lead to more persistent inflation; more persistent inflation increases the likelihood that interest rates will remain elevated for longer. This scenario is clearly unfavorable for gold prices.

It's not just gold; major long-term government bonds globally have also failed to serve as safe havens.

On March 23, the yield on the US 10-year Treasury note rose to 4.423% during Asian trading hours, a high since July 2025.

On March 20, the UK 10-year government bond yield rose to 4.94%, a high since the 2008 global financial crisis; the German 10-year government bond yield climbed to 3.03%, its highest level since 2011.

The analyst explained that the rise in bond yields aligns with the logic behind the fall in gold prices: both are due to 'stagflation fears' stemming from the oil supply shock outweighing safe-haven demand.

Following the pandemic, government debt levels in developed countries like the US, Germany, France, and the UK are at historically high levels. Stagflation expectations are hindering central banks from cutting rates, increasing debt risks and pushing up real interest rates.

Additionally, the analyst believes that sharp declines in major global stock markets and risk assets have also triggered short-term liquidity恐慌.

According to estimates from various institutions, the size of US short-term money market funds currently stands at around $8 trillion. Data shows that global energy sector equity funds have seen net inflows of $2.1 billion since March, approaching the 12-year high of $2.2 billion set in June 2014.

Over 90% of oil exports from major Persian Gulf producers transit the Strait of Hormuz, while Japan and South Korea rely on Middle Eastern seaborne shipments for over 80% of their crude oil imports. Any disruption to the strait would severely impact global crude oil supply.

The analyst noted that as the source of basic chemicals, a disruption in crude oil supply would increase upstream costs for items like fertilizers and industrial gases, subsequently affecting agricultural and industrial production, while also raising global transportation costs, ultimately triggering broad inflationary pressures.

On March 23, Brent and WTI crude oil prices rose above $108 and $100 per barrel, respectively. An investment bank has also raised its oil price forecasts for the next two years, warning that prices could reach $147 under extreme conditions.

Facing the supply gap, the International Energy Agency announced that its 32 member countries have unanimously agreed to tap strategic petroleum reserves, releasing 400 million barrels, and this supply has begun entering the market. While releasing reserves can buy time, it cannot resolve the crisis. An analysis report stated that the coordinated release 'cannot fill' the gap caused by supply disruptions and will have limited impact on oil price trends.

A securities firm pointed out in a March 22 research report that the impact of the current Strait of Hormuz blockade on global crude oil supply is the largest among historical geopolitical events.

According to IEA calculations, a blockade could lead to a sharp reduction of approximately 20 million barrels per day in global crude supply, accounting for about 20% of total global supply. This supply gap is about ten times larger than during the Russia-Ukraine conflict and the Libyan civil war, far exceeding mere production cuts by individual oil-producing nations, leading to a rapid and severe冲击 on the pricing logic of global major asset classes.

Similar to the 2022 Russia-Ukraine conflict, the initial impact of the current Middle East crisis during the 'oil price spike' phase on asset pricing has manifested as a combination of a strong US dollar, rising US Treasury yields, a US stock market correction, and falling gold prices. This indicates that in the face of a sudden oil supply shock, the market's initial core trading theme remains 'rising inflation expectations coupled with Fed tightening concerns.'

However, the securities firm believes that although the magnitude of the current oil price shock is already twice that seen at the outbreak of the Russia-Ukraine conflict, the extent of the rise in the US dollar and US Treasury yields has been relatively weaker. This suggests that the market has not yet fully priced in the possibility of high oil prices persisting longer than expected.

Currently, the Strait of Hormuz is effectively closed to navigation, and the energy shortage situation is暂时 difficult to reverse. Analysts have predicted three possible scenarios.

Pessimistic Scenario: If the conflict persists beyond the end of May, oil prices could rise to the $150-$160 range. A further 30% increase in oil prices could lead to market expectations pricing in 75 basis points of Fed rate hikes. This would correspond to the 2-year US Treasury yield rising to near or above 4.5%, severely impacting high-valuation sectors of the US stock market. The US dollar index might climb to around 104, and its suppressive effect on gold prices would likely persist, though potentially marginally weakening.

Neutral Scenario: Oil prices remain between $100-$120, and markets continue to experience volatility.

Optimistic Scenario: The Strait of Hormuz is conditionally reopened, oil prices fall back to $80-$100, overseas stock and bond markets experience marginal recovery, and the US dollar weakens.

On March 19, the Fed Chair stated that discussions about rate hikes were not off the table. The next day, a Fed Governor, previously seen as dovish, indicated that after the Strait of Hormuz closure and rising oil prices, he viewed inflation risks as more concerning.

Market traders are increasing their bets on Fed rate hikes. Swap market data on March 23 indicated expectations for 20 basis points of Fed hikes this year, up from 8 basis points the previous Friday, whereas a week earlier the market had priced in 25 basis points of cuts.

Expectations for rate cuts from the European Central Bank and the Bank of England have also shifted.

One bank no longer forecasts two ECB rate cuts in 2026, and some traders are even beginning to price in potential hikes; another bank has removed all its forecasts for BoE rate cuts in 2026, and a third has delayed its expectations for the timing of BoE cuts.

Historically, however, rising oil prices do not necessarily cause inflation, nor are they directly linked to Fed rate hikes.

A research report from another securities firm on March 22 pointed out that historically, during periods of rising oil prices, the frequency of Fed rate hikes and cuts has been roughly similar. This indicates that oil prices are not the core variable determining monetary policy. This is because oil prices can have conflicting effects on inflation: posing an upside risk to inflation while negatively suppressing consumption; which effect dominates determines the policy response.

The analyst stated that in the short term, the stagflation uncertainty brought by the Iran issue has not yet fully materialized, and the Fed's response remains primarily 'watchful and cautiously hawkish.' The current Fed Chair still views the oil price shock as a 'one-time supply-side冲击,' implying an assumption that its impact on inflation is primarily short-term.

The analyst further noted that in the long term, the Fed's reaction could vary depending on the persistence of the Middle East issue and the resulting elevated oil prices.

If the Iran issue is resolved quickly, leading to a partial reopening of the Strait of Hormutz within weeks and a subsequent decline in crude oil prices, the Fed might resume its rate-cutting process in the second half of the year based on domestic employment and inflation levels.

If the Iran issue is not resolved quickly, or its consequences lead to oil prices remaining high for an extended period, US inflation expectations could become 'unanchored.' In this case, the Fed might delay or even cancel its projected rate cut path for 2026, and in extreme circumstances, might even consider small rate hikes to curb inflation.