Oil Breaks $100, Gold Remains Flat: A 40-Year Pricing Logic May Be Failing

Since March 2026, the global commodities market has experienced a rare asset divergence. The escalation of geopolitical tensions in the Middle East has driven oil prices sharply higher, but traditionally safe-haven gold has not strengthened in tandem.

Historically, when local conflicts escalate, both gold and crude oil tend to move in the same direction due to safe-haven demand and supply concerns. However, this time, their trends are diverging, attracting widespread market attention.

An Unusual Price Divergence

In mid-March, as tensions in the Strait of Hormuz persisted, international oil prices remained strong. As of the close on March 17 local time, NYMEX April crude futures rose $2.71 to $96.21 per barrel, up 2.90%; London Brent May futures increased $3.21 to $103.42 per barrel, up 3.20%.

The key export port of Fujairah experienced a fire caused by a new attack, halting oil loading operations at Abu Dhabi National Oil Company. Meanwhile, the assassination of the Secretary of Iran’s Supreme National Security Council further heightened supply concerns.

Yet, gold, which also has safe-haven attributes, has not benefited from this geopolitical risk premium. Current COMEX gold futures and spot gold prices remain around $5,000 per ounce, slightly below previous highs.

The Gold-Oil Ratio Divergence has led some analysts to believe that gold’s main driver is not just safe-haven demand but real interest rates. Rising oil prices boost inflation expectations, influencing market views on Federal Reserve monetary policy. As rate cut expectations are delayed, the dollar and U.S. Treasury yields are supported, putting pressure on gold.

Data as of 4 p.m. on March 18 shows the current U.S. 10-year Treasury yield at about 4.18%, the 10-year TIPS yield around 1.80%, and the dollar index near 99.60, remaining high overall. The opportunity cost of holding gold remains significant.

What Is the Market Trading?

With oil prices surging and stabilizing above $100, the Gold-Oil Ratio (the ratio of gold price to oil price) has sharply fallen from nearly 85 at the start of 2026 to below 55 now.

Typically, this indicates that oil is relatively stronger and gold weaker, suggesting the market is pricing in a scenario of high inflation and high interest rates rather than recession and safe-haven demand. This aligns with the current asset performance of rising oil and falling gold.

Fund flows also reflect changing market preferences. Looking at domestic ETFs, in the first week of March 2026, the top ten ETFs by net inflow included four in the oil and gas sector. China National Petroleum Fund’s oil ETF attracted 6.598 billion yuan, ranking first; other notable inflows include Penghua Oil ETF, Huatai Oil & Gas ETF, and Invesco Oil ETF, with a total of 18.041 billion yuan across these four ETFs. Although some funds saw outflows in the second week, the overall trend remains upward.

According to a report from Bank of China Futures, as of the week ending March 13, API crude inventories increased by 6.556 million barrels (vs. an expected increase of 73,000 barrels); API gasoline inventories decreased by 4.56 million barrels (vs. an expected decrease of 1.815 million); API distillate inventories decreased by 1.394 million barrels (vs. an expected decrease of 1.721 million).

Is Gold Activating Its Currency Substitution Attribute?

While the market discusses high interest rates suppressing gold, Zhang Xia, Chief Strategist at China Merchants Securities, offers a different perspective.

Zhang Xia notes that most current market perceptions of gold prices, or dollar-denominated gold, are based on the historical period from 1985 to 2021. This pricing framework assumes two main points: that the dollar’s excessive issuance drives gold prices higher, and that U.S. real interest rates move inversely to gold. This essentially anchors gold to the dollar, but may only be a product of a specific historical phase.

The core of this analysis lies in the nature of sovereign fiat currencies. Zhang Xia believes that the value of sovereign credit currencies is supported by three pillars: economic productivity, military and geopolitical strength, and institutional credibility and rule of law. After the Russia-Ukraine conflict in 2022, the freezing of Russian foreign exchange reserves by Western countries marked a turning point, breaking the notion that “sovereign assets are invulnerable,” and introducing “liquidity risk” as a new variable in global asset pricing.

From this perspective, the three traditional assumptions underpinning modern capital valuation—perpetual growth, profit maximization, and efficient markets—are being challenged. Based on this, Zhang Xia suggests that if the dollar’s credit continues to erode, gold’s role as a currency substitute will be reactivated, and its price will systematically rise. The current widespread belief that high interest rates suppress gold may only be a short-term market inertia.

Looking at a longer timeframe, Zhang Xia sees similarities between today’s environment and the 1970s–1980s. During that period, systemic imbalances in the dollar’s reserve currency foundation led to a volatile transition phase. After the dollar’s de-pegging, gold prices soared from $35 per ounce to a peak of $850 in 1980—a collective “vote of no confidence” in dollar credit.

This turbulence persisted until 1979, when the Soviet-Afghan war and Fed Chairman Paul Volcker’s policies led to a final decline in gold prices in 1980. As dollar confidence was restored and expectations of U.S.-Soviet rivalry settled, gold entered a 40-year period of implicit anchoring.

In Zhang Xia’s view, the current “sluggishness” of gold under interest rate suppression may be brewing the momentum for a new paradigm shift.