William Blair: Oil Supply Crisis Boosts Dollar and Bond Yields, Weighing on Gold, But Safe-Haven Appeal Remains

William Blair's senior corporate credit analyst Simone from the emerging markets bond team commented on gold's performance amid recent geopolitical tensions and oil supply shocks. Despite a major conflict in the Middle East, gold experienced its worst weekly performance in six years as of March 20 this year. Simone noted that while rising geopolitical risks typically benefit gold, the current situation differs due to an ongoing oil supply crisis. This has driven the U.S. dollar and bond yields higher, both of which are negative factors for gold prices. The strengthening negative correlation between gold and the U.S. dollar in recent years has contributed to the decline in gold prices. The gold rallies in 2025 and 2026 were driven by investor inflows, but as equity markets fell, investors sought to increase liquidity, leading to a partial reversal of these flows. In a high oil price environment, central banks adopting more hawkish stances have also created headwinds for gold. With the conflict in Iran pushing up energy costs and pressuring Asian currencies, gold and silver ETFs have seen a sell-off. It is believed that investors may currently be utilizing gold's liquidity to meet other funding needs. Nevertheless, gold's appeal as a safe-haven asset persists and could support a price recovery in the coming quarters. Gold serves as a high-quality hedge, sometimes acting like insurance. However, as geopolitical instability intensifies, elevated oil prices and equity market performance may trigger fiscal and balance of payments issues, potentially leading central banks and investors to sell some gold holdings to address liquidity demands. Regarding central bank activity, gold purchases by central banks remained high in 2025 but were lower than during the 2022-2024 period, likely due to rising gold prices increasing its share in foreign exchange reserves. The current price correction should theoretically make gold more attractive for central bank purchases, but central banks in Asia are preoccupied with other priorities, adding uncertainty to the buying outlook. These priorities include stabilizing exchange rates, alleviating fiscal concerns, and addressing worsening balance of payments situations for oil-importing nations.