Is the gold crash driven by a liquidity crisis? A similar event occurred in 2008, followed by a 250% surge over the next three years.

As tensions in the Middle East escalate again and the market worries about the possibility of the United States launching a new round of military strikes against Iran, the traditional safe-haven asset, gold, has instead suffered a sharp decline, dropping to its lowest level in more than a year last Friday. This trend contrasts with the traditional pattern during past regional conflicts, where investors would flock to gold, U.S. Treasuries, and the dollar.

During U.S. President Donald Trump's second term, the logic of market risk aversion is undergoing changes. The tech stock rally that drove the U.S. stock market higher over the past four years, as well as the recent sharp reversal in related stocks, is disrupting traditional capital flight-to-safety routes.

Dana Samuelson, president of American Gold Exchange, stated, last Friday, the stock market experienced a major sell-off, and the liquidity-driven flight to safety process had a spillover impact on the precious metals market. Investors in urgent need of cash due to losses in stock investments turned to selling gold to raise funds.

On Friday, Comex gold futures in New York settled at $3,898.90 per ounce, with the most actively traded December contract moving lower. Samuelson pointed out that when the stock market sell-off occurred, the gold market itself was already in a “weak and vulnerable” state, with prices hovering above a key support level of $3,975 established in July. Once this technical support was breached, it further intensified gold’s decline.

On the same day, all major U.S. stock indices fell across the board: the Dow Jones Industrial Average (DJIA) fell 1.09%, the S&P 500 Index (SPX) dropped 1.82%, and the Nasdaq Composite Index (COMP) tumbled 2.86%.

Michael Armbruster, co-founder and managing partner of futures brokerage Altavest, said that when the stock market drops sharply, what investors need most is liquidity.

Middle East Risks Intensify, Interest Rates and Treasury Yields Suppress Gold Prices

However, Samuelson believes that the performance of various market assets currently also reflects that investors are front-running the risk that the situation in the Persian Gulf could deteriorate further. He noted that there are concerns that a major military escalation could occur as soon as this week, leading to regional turmoil.

Trump’s recent remarks have heightened these concerns. His posts on social media indicate that large-scale strike plans have already been drawn up.

Samer Hasn, Senior Market Analyst at XS.com, said that despite heightened tensions in the Middle East and a high risk of regional warfare reigniting, gold remains under pressure and has difficulty sustaining a significant rebound.

He believes that the simultaneous existence of a worsening regional situation and the resilience shown by the U.S. economy may prompt the Federal Reserve to maintain its “higher-for-longer” interest rate stance, keeping U.S. Treasury yields elevated, thus preventing a sustained rebound in gold prices.

Meanwhile, Rob Haworth, Senior Investment Strategist at U.S. Bank Asset Management, stated that after tech company earnings largely met expectations and the sell-off momentum in the artificial intelligence sector intensified, markets are now shifting their focus to economic growth risks.

He pointed out that if the sell-off in the AI sector further accelerates, especially if election results show voters opposing data center construction, gold could receive some support as a result.

Long-term Outlook Still Influenced by Rate Cuts and Debt Financing

Despite the short-term pressure, Armbruster still believes that gold prices could rise in the long term, especially if the Federal Reserve shifts to rate cuts in 2027.

He stated that the current scenario of gold and stocks falling in tandem is reminiscent of the 2008 financial crisis. Back then, gold bottomed out in October and went on to gain over 250% over the next three years.

Armbruster also noted that the U.S. government needs to continue increasing the money supply to finance its massive debt. In the long run, this will provide very strong tailwinds for gold. He said, Altavest has advised gold-bullish investors to temporarily keep cash reserves and wait for a more opportune time before year-end.

He specifically reminded investors: “Now is not the time to bottom fish.”