Geopolitical risk is rising, yet gold remains heavy — the Safe Haven Paradox is at work
Tensions in the Strait of Hormuz in the Middle East are intensifying. Normally this would be a time when gold would be bought, yet the market is barely holding around $4,000. Today I will try to organize the “why” as much as possible. From the perspective of operating an EA, I add one final point.
When wars or political turmoil occur, people sell off high-risk assets and move capital to what is perceived as more universally valuable. Stocks and emerging-market currencies depend on the credit of governments and corporations, whereas gold does not. There is no issuer, and it cannot melt away regardless of any country’s fiscal crisis, so it tends to be bought as a “last refuge.”
This demand is called “safe-haven (refuge) demand.” The pattern has repeatedly appeared: geopolitical risk rises → funds flee from stocks and currencies → inflows into gold.
This is an illustrative image. Actual price movements are determined by multiple factors.
What’s happening in this week’s market differs slightly from the usual flow. Tensions in the Middle East are simultaneously exerting upward and downward pressures on gold.
The issue is crude oil. The Strait of Hormuz is a chokepoint through which about 20% of the world’s oil is transported, and rising tensions here tend to push oil prices higher. If oil goes up, overall energy costs rise, pushing up inflation. In other words, concerns about inflation resurgence arise.
If inflation may rekindle, the Fed would find it harder to cut rates. If rate-cut expectations recede, real yields rise, and the dollar tends to be bought. Since gold is traded in dollars, a stronger dollar makes gold relatively expensive and easier to sell. The force to buy gold for safe-haven demand and the force to sell gold due to a stronger dollar collide head-on.
This week, gold is directionless around $4,000 because the forces pulling it up and down are equally matched.
Organizing these causal relationships is meaningful as market study. However, the EA I operate never asks why.
Shokin Ryu looks at the recent price action of gold to decide entries. Enmusubi AI compares USDJPY, GBPJPY, and EURJPY and picks the “lagging one” coin. Futago (Twin Moon) enters counter-trend the moment it judges the RSI of EURUSD has gone too far. Whether this is the Safe Haven paradox or ordinary supply-demand movement, the EA has no function to judge it. It simply watches “how it is moving” and continues to operate according to the rules.
That is both a weakness and a strength of the EA. It does not misread whether Safe Haven is working or whether rate factors are winning and accumulate discretionary losses. On the other hand, when an unforeseen crash occurs, it cannot realize it and back off.
This Thursday (July 23) the ECB will announce its policy rate and President Lagarde will hold a press conference. Next week the US FOMC is also due. Such major events can rapidly increase volatility in a short period.
The EA will still move according to the rules, but a design without a stop loss (like Enmusubi AI) may experience larger unrealized losses than anticipated during sudden changes. Trusting the EA and keeping it running with ample funds are both necessary. It is better to run with a size of funds that you planned for from the start than to manually stop before events.
- This article aims to explain the market environment and does not advocate any particular trades.
- Market forecasts and scenarios may be wrong. In particular around major events, unexpected price movements are more likely, so please be careful.
- An EA without a stop loss may incur large unrealized losses if the market moves in one direction for a long time. Always operate with surplus funds.
- Past backtest results of the EA do not guarantee future profits.
- Gold is a safe-haven asset, but“When the escape demand path counteracts”, geostrategic risk rising does not push prices higher
- This path:Middle East tension → Oil price rise → Inflation concerns → Hawkish Fed expectations → Dollar appreciation → Selling pressure on gold
- This tug-of-war creates the range around $4,000
- EA moves without asking “why it moves,” butit is supported by ample funds and appropriate sizing
- Prepare for volatility on ECB Thursday this week and FOMC next week
Understanding the market’s “why” and calmly running the EA do not contradict each other. Knowledge can help justify that today’s unrealized losses may not continue forever. If you have questions or concerns, feel free to consult the Asahina Lab.
※This article is intended to provide information and is not investment solicitation. The results shown are past performances and do not guarantee future profits. FX/CFD trading involves risk. Please make investment decisions at your own responsibility.