The escalation of tensions in the Middle East has significantly impacted global asset prices. The most notable effect has been on international oil prices. The Strait of Hormuz, a critical global shipping passage, controls 20% of the world's oil and gas transportation. Following Iran's blockade of the strait, international oil prices surged sharply, rising from $73 per barrel before the conflict to as high as $120 per barrel. As oil is the lifeblood of industry, its price increase has heightened global inflation expectations, forcing the Federal Reserve to postpone interest rate cuts. Many now anticipate that the Fed may not cut rates at all this year, which has negatively affected other asset prices, with both stock markets and gold experiencing substantial declines.

The recent sharp drop in international gold prices can be attributed to two main factors. First, the substantial rise in gold prices over the past few years has led to significant profit-taking, which is the most fundamental reason. Over the last two years, I have consistently expressed optimism about gold’s performance, citing that against the backdrop of de-dollarization, the U.S. government’s debt has soared—currently exceeding $39 trillion, with annual bond interest payments alone reaching $1.1 trillion, accounting for 20% of the U.S. government’s fiscal revenue, and this figure continues to grow each year. Additionally, the Fed’s repeated use of quantitative easing to stimulate the economy, including unlimited quantitative easing in recent years, has led to an increasing supply of U.S. dollars. In the long run, the price of gold, denominated in dollars, is bound to rise. The long-term upward trend for gold remains intact; however, due to recent declines in asset prices, some institutions have been forced to sell part of their gold holdings to meet liquidity needs. With gold prices having risen considerably over the past two years, substantial profits have been realized, prompting many investors to take profits. Second, the delay in Fed rate cuts has altered expectations for gold price increases, contributing to the sharp decline in international gold prices. Of course, this significant drop also presents an opportunity for investors who missed earlier gains to allocate funds at lower levels. I believe that short-term fluctuations in gold should not be overemphasized; instead, gold should be viewed as a long-term allocatable asset, as its long-term trend remains upward. A short-term decline may, in fact, offer a favorable entry point. The underlying logic supporting the long-term rise in international gold and silver prices has not been altered by the Middle East conflict.

The duration of the Middle East conflict is unlikely to be as protracted as the Russia-Ukraine war. U.S. President Trump faces considerable domestic anti-war pressure, and a prolonged conflict could also create significant challenges for him in next year’s midterm elections. Therefore, Trump now has an incentive to bring the war to an end. If Trump proactively withdraws troops in the near term, Iran may likely reopen the Strait of Hormuz, allowing global oil shipping to return to normal. International oil prices would then decline accordingly, potentially ending the current downturn in global stock markets and gold prices. I hope the involved parties will return to the negotiating table. The ongoing conflict has already inflicted substantial damage on all sides, significantly impacting global economic growth and capital markets.

In recent years, I have consistently maintained a positive outlook on gold’s value as a hard asset. The Fed’s delayed rate cuts only affect short-term gold price volatility and do not change the reality of de-dollarization. Numerous central banks have announced continued increases in their physical gold reserves while selling off U.S. Treasuries. While U.S. 10-year Treasury yields are typically regarded as risk-free returns in textbooks, the current yield has risen to 4.5%, which is far from risk-free and instead carries significant risk. Consequently, major international capital, including financial institutions, have shown increasing demand to sell U.S. Treasuries and shift into physical gold as a safe-haven asset.

Last May, I attended the Berkshire Hathaway Annual Meeting in Omaha for the seventh time. At the meeting, Warren Buffett publicly expressed that his greatest concern is not the bursting of the U.S. tech bubble but the U.S. government’s fiscal crisis. If the situation of mounting debt remains unaddressed, the U.S. dollar could eventually depreciate to near worthlessness. This reflects the concerns of seasoned investors regarding the long-term devaluation of the dollar. The U.S. debt burden continues to grow, and this process appears irreversible. This further underscores gold’s inherent value as a hard asset with evident long-term investment appeal.

With the escalation of Middle East conflicts, it remains uncertain when the war will end. Investor risk aversion has surged sharply, and panic has intensified alongside falling asset prices. On Monday, the A-share market experienced a significant decline, and Hong Kong stocks also underwent a deep correction, mirroring substantial adjustments across global and Asia-Pacific stock markets. The reason is clear: investor anxiety over war uncertainties has amplified panic, leading to widespread selling. U.S. stocks also saw considerable adjustments last Friday. Thus, the greatest uncertainty in the market remains when the war will conclude and when the Strait of Hormuz can resume normal operations, minimizing the war’s impact on the global economy.

At present, rising oil prices seem unavoidable and may persist at elevated levels for an extended period. This will have two main effects: First, higher oil prices will push up global inflation, causing further delays in Fed rate cuts, with some even fearing potential rate hikes. Second, as the lifeblood of industry, rising oil prices will broadly increase the costs of various chemical products and petroleum-fueled industrial goods, significantly affecting the profits of related listed companies. While a few oil and gas companies may benefit, the majority of industrial firms will face negative profit impacts, exacerbating market panic.

Capital markets operate on a self-fulfilling, self-reinforcing mechanism. The more the market falls, the more panicked investors become; the greater the panic, the steeper the decline, creating a cycle of selling pressure. Those selling now were previously firm bulls, but due to sharp short-term declines, they are compelled to reduce positions for risk management. In the first week of the Middle East conflict, I recommended significantly reducing positions to around 50% to hedge against potential market volatility caused by war uncertainties. Currently, the adjustment process is not yet over. Moving forward, we must closely monitor developments in the Middle East. Resolving the situation depends largely on the actions of the primary instigator, President Trump. If Trump, under domestic pressure, declares victory and initiates a troop withdrawal, Iran may likely seize the opportunity to end the war. Israel has also indicated it does not wish to be drawn into a prolonged conflict. In fact, all three involved parties are showing signs of fatigue. However, for now, ending the war hinges on Trump’s next moves.

I believe this war may see repeated back-and-forth for some time, but a prolonged conflict is unlikely, as it differs in nature from the Russia-Ukraine conflict. The blockade of the Strait of Hormuz is increasingly affecting countries worldwide, which will lead to growing international pressure on the warring parties to end the hostilities. Approximately 90% of the Middle East’s food supply transits through the Strait of Hormuz; a prolonged blockade could trigger a food crisis in the region, prompting other Middle Eastern nations to pressure Iran and Israel to restore normal shipping. Although Trump has proposed organizing a multinational fleet to escort shipping through the strait, the risks of warfare mean insurers will not provide coverage for oil tankers and merchant vessels. Ship owners are unwilling to risk passage, as potential missile strikes or accidental clashes could result in unacceptable losses, including the lives of hundreds of crew members. Therefore, until the conflict ends, normal operations in the Strait of Hormuz are unlikely to resume. Consequently, my outlook for the market remains tied to the war’s trajectory: as long as hostilities continue, market panic will persist, and the current downturn will be difficult to reverse.

The recent decline in gold prices stems from multiple factors. The primary reason remains the substantial prior gains, leading to strong profit-taking pressure. As a highly profitable asset, gold is often the first choice for institutions needing liquidity. However, if the war lasts longer than expected, even if the Fed delays rate cuts or raises rates, the decline in gold prices will have its limits. A significant drop would attract bargain-hunting capital. Moreover, the war itself boosts safe-haven demand, and gold is a traditional safe-haven asset. Thus, even if the conflict exceeds expectations, causing oil prices to remain high for longer and amplifying negative impacts on the global economy, gold prices are unlikely to fall indefinitely and may see substantial rebounds. My basic assessment is that international gold prices have transitioned from a previous unilateral uptrend into a phase of high volatility.

Subjectively, I hope the involved parties can exercise restraint and return to negotiations. Continued fighting benefits no one and poses harm to all of humanity. I continue to actively urge all sides to resume dialogue, swiftly end the war, and prevent further humanitarian disasters.