To The Moon

Today, gold dropped all the way from $4,500 per ounce to $4,102, with a maximum decline of as much as 8.8%. Market sentiment has fallen into extreme pessimism.

Considering the previous three trading days, when gold declined by 3.75%, 3.53%, and 3.26% respectively, today’s sharp drop is even more alarming.

After consecutive declines, gold has completely erased its 30% gain for the year.

At this moment of panic, I chose to buy the dip. I bought some $Gold Trust Ishares(IAU)$ at $78.

Next, let’s talk about the logic behind my decision.

First, it is necessary to understand the reasons behind this sharp decline in gold.

According to traditional thinking, gold is a safe-haven asset, and regional conflicts should benefit gold prices. On the first trading day after the US and Israel launched strikes on Iran, gold indeed rose by more than 2.6%.

However, it quickly gave up gains, closing up only 0.84%. The following day, gold plunged 4.38%. Since then, weakness has become evident, and over the past week, gold has entered a free fall.

Why has gold, a safe-haven asset, become a casualty of the Middle East conflict?

On one hand, before the US and Israel launched strikes on Iran, gold had just experienced a super bull market not seen since 1979. After rising 64.4% in 2025, it gained another 30% earlier this year.

The key drivers behind this historic rally were Federal Reserve rate cuts and a weakening US dollar.

On rate cuts, the Fed cut rates three times last year, bringing the policy rate down from 4.33% to 3.64%.

On the dollar, the Bloomberg Dollar Spot Index (tracking the US dollar against 10 major global currencies) fell from 1,320 at the beginning of 2025 to 1,174 at the start of this year, a decline of 11%.

Holding gold does not generate interest, and it is priced in US dollars. Therefore, when the Fed cuts rates and the dollar weakens, the relative value of gold rises, pushing prices higher.

After the Middle East conflict broke out, the Strait of Hormuz was effectively blocked. Combined with mutual attacks on energy infrastructure, oil prices surged. Brent crude futures jumped from $72 to $113.

Oil is a key energy asset. A sharp rise in oil prices inevitably leads to higher downstream prices, which in turn pushes up inflation and suppresses the Fed’s willingness to cut rates.

Before the conflict, the market expected the Fed to cut rates twice this year. After the conflict, analysts began to assign a 50% probability to a rate hike as early as September.

As a result, the Bloomberg Dollar Spot Index has risen recently, and precious metals, including gold, have broadly declined.

In addition to the reversal in monetary policy expectations, the Middle East conflict also triggered equity market declines. Some investors sold gold, which had delivered strong gains, to raise liquidity.

Having understood the reasons behind the decline, let’s look ahead: is gold at $4,100 worth buying?

First, according to foreign media reports, Trump’s war against Iran appears somewhat rushed, with insufficient preparation and without informing allies. This is evidenced by the fact that his request for allied naval escorts was rejected.

Second, the US will hold midterm elections in November this year, with both House and Senate seats up for election. If the war pushes oil prices higher and drives inflation up, public dissatisfaction will rise. A poor election outcome could weaken Trump’s control over Congress, turning him into a lame-duck president and affecting future policy implementation, even influencing the 2028 election.

Therefore, regardless of whether the US deploys ground forces into Iran, this war is unlikely to be prolonged, and high oil prices may be temporary.

Beyond the war, global dynamics also affect gold prices. Since taking office, Trump’s policies—including reciprocal tariffs, threats to annex Greenland, arresting a foreign president, and launching wars—have fundamentally shaken the international order established after World War II.

As a result, central banks around the world continue to increase their gold holdings. As of January this year, global central banks were still buying gold and had not stopped despite high prices.

Looking at China’s central bank, gold reserves increased in both January and February.（Unit: 10,000 troy ounces）

China: Official Reserve Assets: Gold Reserves (Gold Holdings Measured in Troy Ounces)

From this perspective, although the Middle East conflict has altered the Fed’s rate-cut path in the short term, the long-term erosion of the global order is unlikely to reverse. The logic of gold as an alternative to the US dollar remains intact. Once tensions in the Middle East peak, financial assets such as gold may rebound at any time.

Below $4,100, I plan to gradually build positions in gold, capturing opportunities from the sharp decline while also managing the risk of further escalation in the Middle East.

In terms of instruments, I did not choose gold mining ETFs like $VanEck Gold Miners ETF(GDX)$ . Instead, I prefer physical gold ETFs, as this allows me to focus solely on gold price movements without worrying about equity market fluctuations in mining stocks.

Among physical gold ETFs, $SPDR Gold ETF(GLD)$ has about $152.9 billion in assets under management with an expense ratio of 0.40%, making it the largest gold ETF globally. $Gold Trust Ishares(IAU)$ has around $69 billion in assets with a lower expense ratio of 0.25%, making it more suitable for long-term allocation. $Spdr Gold Minishares Trust(GLDM)$ has about $28.8 billion in assets with an expense ratio of just 0.10%, representing a low-cost option that has seen steady inflows in recent years.