Ignore the "sell gold" noise from Turkey, liquidity disruptions are nearing an end, and gold's safe-haven status is about to return!
The Middle East conflict continues to escalate, oil prices remain high, and gold has seen an abnormal and sharp decline amid this round of geopolitical turmoil. However, this unusual performance is not a collapse of fundamental logic but is caused by short-term liquidity disturbances, and this disruption is nearing its end.
Zheshang Securities pointed out in its latest monthly report that whether the geopolitical situation heats up or cools down, gold is expected to benefit. This "two-way benefit" logic gives gold rare allocation value in the current chaotic market environment.
Specifically, the market previously followed a "rising oil prices → retreat in rate cut expectations" trading logic, but the report notes that if oil prices remain high for more than one quarter, the demand destruction effect will begin to emerge and the economic fundamentals will significantly weaken. In other words, the higher the oil price, the greater the risk of recession, and rate cut expectations may increase accordingly. The current conflict has lasted for a month, and the turning point for the market to switch from "rate hike trading" to "recession trading" may be imminent.
Meanwhile, the trend of global central banks increasing gold holdings remains unchanged. Turkey's gold sales are a one-off due to its heavy reliance on imported energy, a high proportion of gold in reserves, and very little US Treasury holdings—making gold sales a forced method for oil import financing. The gold reserves of major European countries have been stable for a long time and serve as a backing for the euro's credibility, with little motivation to reduce them.
Additionally, the improvement in the holding structure has also provided the conditions for gold to return to fundamental pricing. Currently, net-long non-commercial positions and retail holdings in COMEX gold have both fallen significantly compared to previous levels, and the liquidity disturbance that previously suppressed gold is nearing its end.
Why did gold "fail" during the geopolitical conflict? Liquidity is the real culprit
Historically, the loss of gold's safe-haven attribute often occurs during liquidity crises, such as the 2008 financial crisis and March 2020. During the initial phase of this round of Middle East conflict, the underlying logic for gold's sharp decline was the same, specifically stemming from three types of liquidity disruptions:
First, oil prices surge reversing rate cut expectations, global liquidity contracts overall. With oil prices rising rapidly, rate cut expectations for the year quickly retreated and, around March 20, the market even started expecting rate hikes within the year, directly tightening the global liquidity environment and exerting pressure on gold.
Second, the expansion in multi-asset strategies leads to systematic position reduction under tail risk. In 2025, a broad rally in global assets accelerated the development of multi-asset strategies (FOF). Data shows that from January 2025 to March 2026, equity fund quotas grew 13.6%, while FOF fund quotas surged 111.2%. When tail risk emerges, multi-asset strategies systematically reduce positions, causing an abnormal phenomenon of simultaneous declines across different assets.
Third, retail investor funds chase gains and cut losses, amplifying liquidity disruption. Gold’s previous strong performance attracted a flood of retail investor funds, which then exited en masse during the March pullback. Data shows net-long non-reportable positions in COMEX gold futures and SPDR Gold ETF holdings both dropped sharply, with retail investors’ chase-and-dump actions further amplifying liquidity disruptions in gold.
The Turkish central bank sale is a special case; the global central bank gold buying trend remains unchanged
Recently, the Turkish central bank officially announced its gold sale, sparking market concerns over a reversal in central bank gold buying logic. The report believes these concerns are overinterpreted, as Turkey’s actions stem from highly specific circumstances.
According to Reuters data from Thursday, Turkey’s central bank gold reserves plunged by more than 118 tons over the past two weeks, valued close to $20 billion. Last week, reserves fell by 69.1 tons to 702.5 tons—a single-week offloading that marked the biggest weekly drop since at least 2013. Estimates from three bankers reveal about 26 tons of gold were sold directly last week, with around 42 tons utilized via swaps; the prior week saw reserves drop by 49.3 tons.
Turkey’s energy needs rely heavily on imports, and rising oil prices force it to acquire more US dollars to purchase energy. At the same time, nearly half of Turkey’s official reserves are in gold and only a very small portion in US Treasuries, so it cannot sell Treasuries to get dollars and must sell gold.
Other countries with high gold proportions in reserves and low energy self-sufficiency are mainly concentrated in Europe. Germany's official gold-to-reserves ratio is as high as 82%, France’s is 80%, and Italy’s is 79%. However, European countries still possess relatively sufficient energy reserves, and gold serves as the credit backbone for the euro.
Data shows that Germany, France, and Italy’s gold reserve sizes have remained almost unchanged in recent years. Lacking obvious liquidity pressures, the probability of European countries selling gold in the future is low, and the long-term trend of central bank gold buying will not reverse due to Turkey's special case.
A switch in market trading paradigms may be coming; gold welcomes two-way benefit logic
Previously, the market’s trading paradigm was: rising oil prices equaled a retreat in rate cut expectations—the market believed the Federal Reserve’s focus was on inflation. In March, the US Manufacturing PMI reached 52.7, hitting a recent high, and under strong fundamentals, this trading logic was smooth.
However, if oil prices remain high for over a quarter, the demand destruction effect may start to manifest, and economic fundamentals will significantly weaken. At that point, the higher the oil price, the greater the recession risk, and Fed rate cut expectations may instead rise. Considering the conflict has lasted a month and market expectations often precede fundamentals, if oil prices stay high, the turning point for the switch from "rate hike trading" to "recession trading" may be imminent.
This forms gold’s "two-way benefit" logic:
- If geopolitical tensions further worsen: The market shifts to recession trading, rate cut expectations strengthen, and gold benefits;
- If geopolitical tensions ease: Oil prices fall, rate cut expectations still strengthen, and gold benefits as well.
In addition, after the previous decline, the problem of crowded gold positions may have been largely resolved. As of March 24, the net-long non-commercial position in COMEX gold (roughly representing institutions) is at the 25.3 percentile since 2020, and net-long non-reportable positions (roughly representing retail) are at the 79.9 percentile, both noticeably lower than before.
Improvement in the position structure means that the liquidity disturbance which previously suppressed gold is nearing its end, and gold pricing is expected to gradually revert to fundamental logic.
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