Analysts from Saxo Bank stated that the ongoing conflict in the Middle East is causing broad macroeconomic shocks across global markets, forcing investors to simultaneously reassess inflation, interest rates, economic growth, and liquidity conditions. Gold is being sold off because it has been one of the few liquid assets that maintained an upward trend over the past year. Gold is facing pressure from concerns that high energy prices will drive up inflation and dampen expectations for further interest rate cuts in the near term.
This view aligns closely with a recent report by Ole Hansen, Head of Commodity Strategy at Saxo Bank. In a client report dated March 23, he emphasized that gold and silver are under significant pressure, as the Middle East conflict triggers macroeconomic shocks in global markets, compelling investors to concurrently reprice inflation, rates, growth, and liquidity. The latest spot gold price has retreated approximately 17% from its peak early in the conflict but has established strong support around $4100, consistent with the market's assessment of tail risks rather than a trend reversal.
The current gold market is experiencing a typical "liquidity shock": high oil prices are boosting inflation expectations, leading markets to price in a slower or even paused path for interest rate cuts by the Federal Reserve and other major central banks. This, combined with a strengthening US dollar and the unwinding of leveraged positions, is causing selling pressure on non-yielding gold. Although geopolitical risks persist, Ole Hansen pointed out that this round of adjustment primarily stems from "crowded long positions being unwound, stop-loss triggers, and institutional liquidity needs," rather than a reversal in fundamentals. Latest data shows that spot gold touched the key $4100 level on March 23 before rebounding quickly, with the 200-day moving average coinciding with the psychological support level to form effective buying interest. The probability of short-term consolidation is significantly higher than a sustained downward trend.
Current VIX option activity further confirms the characteristics of tail risk. The CBOE Volatility Index recently stood at 26.15, significantly higher than pre-conflict levels but not yet breaching historical panic peaks. The implied volatility curve shows a structure of "elevated short-term levels with longer-dated contracts receding," indicating market concerns are concentrated on near-term geopolitical events over the next two weeks, rather than a long-term trend reversal. This options pricing logic resonates with gold's $4100 support: investors are not shifting en masse to a bearish stance but are using VIX to hedge against tail events while establishing defensive positions in gold at lower levels.
Ole Hansen added in his March 22 analysis that once the current phase of forced selling concludes, the outlook for gold could improve rapidly. This assessment aligns with the confirmation of support at $4100: while high energy prices are suppressing rate cut expectations in the short term, central bank gold buying demand and its long-term safe-haven attributes remain unchanged. The market is currently in a transitional period of emotional desensitization and fundamental reassessment. Investors need to remain vigilant for potential "secondary effects" of the liquidity shock, but with multiple technical and psychological support levels now established around $4100, maintaining a wide trading range is the most probable path.
Latest market dynamics and VIX option pricing indicate that while the Middle East conflict has triggered short-term selling in gold, support at $4100 is holding firm and tail risks have not evolved into a trend reversal. The perspective from Saxo Bank reminds investors that the phase of macroeconomic reassessment is likely to be dominated by churn, requiring attention to signals from the interplay between oil prices and interest rate cut expectations.
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