Recent gold selling appears increasingly driven by sovereign-level forced liquidity management, while slowing growth could compel a return to dovish central bank policies, potentially propelling the long-term bull market into its next phase, according to Stephen Innes, Managing Partner at SPI Asset Management.
In a recent analysis, Innes noted that following the outbreak of conflict in the Hormuz Strait, gold has been trading "more like a market facing a real-world margin call" rather than an asset that has lost its upward momentum.
"The panic that swept through the gold and silver markets after the Hormuz Strait shock was never really about a sudden loss of investor confidence in gold itself, but about liquidity," he explained. "Oil prices exploded, shipping lanes stalled, inflation expectations spread through the system like a ruptured gas main in a financial district, and central banks in energy-importing nations suddenly found themselves scrambling for dollar liquidity just to maintain domestic stability."
Under such conditions, "even sacred reserve assets get taken to the pawn shop window," Innes stated.
"The market has interpreted these sovereign sales as the end of the gold trade. In reality, it increasingly looks like the opposite. Forced selling is not ideological selling; it's emergency reserve triage during an energy crisis," he wrote.
Innes suggested that while the market focuses on rising yields and the consequent pressure on non-yielding assets, investors may be missing the bigger macro picture.
"Yes, nominal rates surged as oil prices spiked and inflation fears flooded the bond market. Yes, gold initially faltered under the weight of rising real yields and sovereign liquidation flows. But this is typically how the opening act of a crisis cycle plays out. The first stage is inflation panic. The second is growth damage. The third is when central banks begin quietly pivoting back toward easing as the economic engine starts smoking after the initial shock," he said.
"Historically, gold's best performance doesn't come during the initial inflation panic, but when policymakers realize they cannot fully normalize without crushing growth, credit, and employment," Innes added.
He believes this shift is gradually materializing. "If oil prices stabilize or decline as geopolitical tensions cool and shipping routes normalize, then inflation pressures begin to mechanically recede," he pointed out. "But the economic scarring from the energy squeeze does not disappear as quickly. Consumers remain bruised, manufacturing margins remain pressured, and liquidity conditions remain tighter than the headline inflation data about to be released will suggest."
"In other words, the bond market may soon start pricing in slowing growth and eventual policy easing, even as the global economy still struggles in the aftermath of the shock. The same yield curve that acted like a wrecking ball on gold during the panic phase could ultimately become its greatest tailwind, as traders begin positioning for a more accommodative monetary environment by 2027," Innes explained.
It is this dynamic that leads him to believe much of the debate around gold's recent performance is missing the point.
"Jeffrey Currie, one of Wall Street's sharpest commodity minds, correctly identified the mechanical liquidation phase that was occurring. His argument is straightforward: when marginal central banks shift from being structural buyers to forced sellers to pay for imported energy and defend their collapsing currencies, gold temporarily loses its biggest source of demand. Turkey became the clearest real-world case of this dynamic, as it tapped reserves to buffer its domestic economy from the oil price shock. From a tactical trading perspective, this logic is perfectly sound. Gold became a source of liquidity, not a destination for capital," Innes said.
"But beneath this bearish short-term framework lies a far more important long-term conclusion," he continued. "Once the growth damage from the energy shock starts forcing central banks to pivot back toward dovish policy, this trade resets completely."
Innes stated it is at this stage that the true asymmetries in the global economy begin to show.
"For much of the past decade, the market poured capital into the digital economy while systematically underinvesting in the physical one. The world built software valuations, AI infrastructure, semiconductor dominance, cloud systems, and data centers, while underallocating to mines, refineries, pipelines, drilling projects, power grids, and commodity supply chains. This imbalance now resembles a casino: everyone is crowded into the glamorous poker room upstairs while the building's wiring quietly rots downstairs," he wrote.
The AI revolution of recent years has only accelerated and intensified these distortions, Innes noted. "The world's largest tech companies now deploy capital expenditure budgets comparable to sovereign economies," he said. "But all this digital expansion ultimately rests on a massive physical commodity base—energy, metals, copper, cooling systems, transformers, uranium, natural gas, industrial infrastructure, and logistics networks."
Commodities are "the most mispriced corner of the global macro landscape," Innes argued, adding that soaring oil and metals prices are not the disease itself but the fever symptoms.
"The real pathology is years of capital underinvestment meeting a world that suddenly needs massive physical expansion in AI, electrification, defense, manufacturing reshoring, and energy security. The Hormuz Strait crisis didn't create this imbalance. It merely exposed how little shock-absorbing resilience lies beneath the surface once geopolitical stress hits the system. The market suddenly realized the physical world has almost no shock absorbers left," he wrote.
Gold occupies a unique place in this broader repricing framework. "It is no longer just an inflation hedge or a crisis asset," Innes said. "In a world that is structurally more fragmented, resource-constrained, debt-laden, and politically unstable, it increasingly acts as a form of monetary insurance. Central banks understand this, even if short-term liquidity events temporarily interrupt the gold accumulation cycle."
Innes even suggested that recent forced sovereign selling could strengthen, not weaken, long-term central bank gold-buying programs. "Countries forced to tap gold reserves during the oil price panic now see more clearly how vulnerable the fiat reserve system becomes during periods of geopolitical disturbance and weaponization of payment systems conflict. Every crisis teaches reserve managers where their dependencies truly lie. And these lessons tend to leave very long-lasting scars," he wrote.
Of all nations, China understands this dynamic best, according to Innes. "China's long-term gold accumulation strategy was never purely about inflation protection or speculative commodity allocation," he said. "It has always been about achieving strategic reserve insulation within a fractured global monetary order increasingly dominated by sanction risks, trade fragmentation, military tensions, and weaponization of reserves. In a world where neutrality itself is becoming scarce, gold provides neutrality."
Innes characterized gold's recent pullback as "increasingly looking like a washout event, not the collapse of a long-term bull market," suggesting it has cleared out weak leveraged longs and short-term momentum traders.
"The oil shock and yield surge have burned off the speculative froth. What remains beneath is a more durable structural foundation tied to sovereign reserve diversification, physical economy underinvestment, geopolitical fragmentation, and the eventual return of easy money once growth deterioration becomes impossible to ignore," he said.
The market is still trying to analyze gold through the historical relationship between yields and non-yielding assets, Innes noted. "But the world is no longer in a normal macro cycle," he warned. "This is starting to look more like a slow repricing of political trust itself. And gold tends to perform best precisely when investors stop believing policymakers can fully control the consequences of the systems they've built."
In conclusion, Innes stated that gold is far more than a metal sitting in a vault. "It is the market's oldest form of skepticism," he summarized. "And after years of war, sanctions, inflation shocks, debt explosions, reserve weaponization, and geopolitical fragmentation, skepticism may quietly be becoming the world's fastest-growing asset class."
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