The ceasefire has occurred; why is gold price more "restrained" than oil price?

Ask AI · Why does gold price increase rely more on interest rate expectations?

China Securities Journal, April 8 — (Wei Wei) Beijing time, early April 8, the global financial markets experienced a thrilling “roller coaster.”

Under Pakistan’s mediation, the US and Iran reached a “ceasefire” consensus: two weeks of negotiations will begin in Islamabad, Pakistan, and the Strait of Hormuz will be temporarily open.

Once the news broke, the originally tense geopolitical nerves instantly relaxed. The market’s most direct response was: international oil prices “plunged sharply,” with WTI crude futures dropping nearly 20% at one point, falling below $100; unlike the “knee-jerk” decline of oil, international gold prices surged straight up, with spot gold breaking through $4,800 per ounce intraday, up more than 2%.

This sharp divergence in asset prices precisely reveals the differences in pricing logic between crude oil and gold. Li Gang, Director of Research at the China Foreign Exchange Investment Research Institute, told China Securities Journal that crude oil prices are highly sensitive to “supply and demand expectations,” and negotiations directly ease supply interruption risks, leading to rapid price reassessment and larger fluctuations.

Li Gang further pointed out that gold is more a financial asset, with its pricing anchored in real interest rates and liquidity conditions; geopolitical factors are only one component of the premium, so its rise is more restrained. Meanwhile, some safe-haven funds had already pre-positioned earlier, weakening the marginal elasticity of this round.

Dongfang Jincheng Research and Development Department Senior Vice President Qu Rui told China Securities Journal that the short-term rapid rise in gold prices is essentially a recovery after previous sharp declines caused by geopolitical conflicts triggering oil price volatility and market liquidity tightening, which led to passive gold selling. At the same time, the Strait of Hormuz may resume navigation, and international oil prices could plummet, easing the previous suppression of rate cut expectations, leading the market to reprice “rate cut expectations warming.” Therefore, liquidity pressure recovery and rate cut expectation revival resonated to push up gold prices.

In Li Gang’s view, the negotiations themselves send signals of “conflict marginal easing,” but due to the high uncertainty of the outcome, the market prefers to price the risk tail in advance. The short-term surge in gold prices is essentially a phased correction by safe-haven funds amid “growing divergence of expectations,” combined with some short covering. Structurally, this looks more like emotional reinforcement in high-level oscillations rather than a trend reversal; gold prices are still constrained by interest rate expectations.

Beyond this two-week negotiation window, industry insiders believe that the logic of the gold bull market remains solid. “As long as Trump’s term does not end, and the global central banks’ rate-cut cycle continues, the trend of rising gold prices will not end—only the pace will slow, and high-level oscillations will become more frequent,” Li Gang said.

Qu Rui also believes that although the current negotiations have released signals of easing, the core disagreements between the US and Iran have not been truly resolved, and geopolitical uncertainties still exist. Coupled with ongoing central bank gold purchases worldwide, the persistent US fiscal and debt pressures, and the approaching long-term cycle of monetary easing, the overall upward logic of gold remains intact.

Li Gang analyzed that, in the long run, the core of gold prices is determined by three main factors: first, the US dollar’s real interest rate center, which directly affects the opportunity cost of holding gold; second, ongoing central bank gold purchases, reflecting “de-dollarization” allocation needs; third, the normalization of geopolitical conflicts, which sustains the safe-haven premium for gold over the long term. Additionally, expanding fiscal deficits and weakening constraints of the fiat currency system are continuously elevating gold’s valuation center.

For investors, the next two weeks are undoubtedly a “dance on the edge of a knife.” The negotiations in Islamabad on April 10 are not only a diplomatic game between the US and Iran but also a stress test for global capital.

Li Gang emphasized that during the negotiation window, market volatility will significantly increase, and suggested mainly using range trading and event-driven strategies, avoiding emotional chasing of gains or panic selling. The strategy could involve “buying on dips and gradually taking profits on rallies,” while using light positions or options to hedge extreme risks and maintaining liquidity to respond to sudden changes. For those pursuing medium- to long-term stable returns, a wait-and-see approach is recommended.

Qu Rui pointed out that if negotiations go smoothly and the situation eases, investors can gradually reduce positions and take profits during gold price rebounds to avoid risks of a retreat after safe-haven demand subsides. If negotiations stall and the situation remains uncertain, investors should consider staying on the sidelines, reducing high-frequency trading, and paying more attention to key data such as the US April non-farm payrolls and CPI. If negotiations break down and conflicts reignite, they can quickly adjust positions based on oil price trends, remaining alert to inflation expectations heating up and triggering a reversal in interest rate logic.

In the next two weeks, global focus will be on the US-Iran negotiations. In this game, the only certainty is uncertainty itself.

(For more reporting clues, please contact the author Wei Wei: weiwei@chinanews.com.cn)(China Securities Journal APP)

(The views expressed herein are for reference only and do not constitute investment advice. Investment involves risks; please proceed with caution.)

Editor: Luo Kun, Li Zhongyuan