As tensions in the Middle East escalate, oil prices and inflation expectations have once again become the focus of the market. The energy sector has recently been sought after, while both stocks and bonds have come under pressure, leading to market concerns about a potential resurgence of &#34;1970s stagflation.&#34; The most surprising element in this scenario is gold: as a widely recognized safe-haven asset, its price has recently experienced a significant pullback. This appears to be because, under the impact of tightening market liquidity, gold, already at a high price, was preferentially sold off by investors to cash out.
In a recent report, Zhang Jiqiang's team at Huatai Securities pointed out: &#34;History can be a reference, but it does not repeat itself exactly.&#34; They divided the stagflationary period of the 1970s into three phases: first, the &#34;inflation&#34; hype; second, a tug-of-war between &#34;inflation&#34; and &#34;economic stagnation&#34;; and finally, &#34;economic stagnation&#34; dominating, leading to a decline in inflation. This means that even if the market retraces the steps of the 1970s, the performance of various assets will not be a simple one-way street of rising or falling, nor can investors expect to solve all problems by &#34;mindlessly buying gold.&#34;
Technical analyst Jordan Roy-Byrne offered a more striking analogy: gold prices &#34;have just replayed the 1971-1973 trend, including the first major pullback after that surge.&#34; In his review of the 1970s bull market, gold, after peaking in 1973, still rose approximately 7 times in the following 7 years, but it encountered &#34;hard pullbacks&#34; of 29%, 24%, 45%, and 20% along the way.
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When reviewing the asset performance of the 1970s, Xu Chenyi's team at Caitong Securities offered a more direct conclusion: throughout the 1970s, gold's return far outpaced other assets, and it was the only major asset class that achieved positive returns after deducting inflation. However, they also cautioned that holding gold was not a smooth experience—during its long-term rise, gold prices often experienced sharp pullbacks, and these declines frequently occurred during periods of stock market rebounds and temporary easing of inflation.
Synthesizing the views of these institutions, a more pragmatic conclusion emerges: the key to discussing whether the market is repeating the &#34;1970s script&#34; now lies not in betting all chips on a single asset, but in closely observing how long the oil price shock will last, and how the US dollar trend and market liquidity will change. Gold's recent short-term weakness does not signify a loss of its investment value in a stagflationary environment. On the contrary, it serves more as a reminder: if the 1970s scenario truly unfolds, investors must first adapt to a rhythm of &#34;sharp rise—sharp fall—rise again.&#34;
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<h2>Why Gold Won in the 1970s: It Rode the Dual Trends of &#34;Monetary Order Change + Energy Shock&#34;</h2>
Caitong Securities' phased review of the 1970s revealed that gold was the best-performing major asset during several critical periods:
<ul>
<li>During the &#34;Dollar-Gold Dissolution&#34; phase (1966/01—1973/10), London spot gold prices rose by 178.4%.</li>
<li>During the first oil crisis (1973/10—1974/03), gold further increased by 76.5%, while the S&amp;P 500 fell by -13.2%.</li>
<li>During the period related to the second oil crisis (1978/11—1981/01), gold surged by 161.9%.</li>
</ul>
If the cycle is extended (1966/01—1985/12), gold's cumulative increase was as high as 829.1%. Caitong Securities also specifically emphasized a crucial data point: after deducting inflation, gold was the only asset that maintained a positive real return during this period, while the real returns for stocks and bonds were all negative.
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This set of figures clarifies gold's &#34;winning rate&#34; in the 1970s: it wasn't just a safe haven, but rather a pricing of &#34;high inflation, negative real interest rates, and monetary credit shocks&#34; in a package.
<h2>What &#34;The First Major Drop After A Surge&#34; Looked Like Historically: Gold's Pullbacks Occurred When Inflation Temporarily Eased and Stocks Recovered</h2>
Looking back at the 1970s, it's a misconception to think gold only moved &#34;one-way up.&#34; According to Caitong Securities' review of the 1966-1985 period, based on the &#34;Merrill Lynch Investment Clock,&#34; gold did not maintain its upward trend in every phase:
• The Preceding Surge: From October 1970 to August 1972 (economic recovery period), gold rose by 79.5%; in the subsequent period from August 1972 to December 1974 (stagflation period), gold continued to surge by 178.9%, while the S&amp;P 500 index fell by 38.3%.
• A Typical Pullback: However, from March 1975 to May 1976 (another economic recovery), gold experienced a significant decline of 29.2%; concurrently, the S&amp;P 500 index rose by 20.2%.
This phase of market performance can be summarized as: early inflation expectations were fully priced in, followed by a reversal due to economic stabilization and recovery, and a rebound in market risk appetite.
In other words, gold in the 1970s did not &#34;only go up and never down&#34;; it gave back some of its gains in specific phases—especially when market expectations were that &#34;stagflation was about to end&#34; or that &#34;policy was facing a shift,&#34; gold's pullbacks were particularly pronounced.
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<h2>Why Did Gold Fall First This Time? Strong Dollar, Crowded Trades, and &#34;Cash Withdrawal Demand&#34;</h2>
Huatai Securities pointed out in its report that in the face of recent market shocks, gold and silver, which should have risen as safe havens, instead led the decline. The core reasons behind this are: a strong US dollar, other assets diverting funds, and gold's previous surge leading to an overvaluation and overly crowded trades. Simply put, when the market desperately needed cash, gold acted as a vehicle for everyone to &#34;sell and exchange for cash.&#34;
Bank of America Merrill Lynch's fund flow data also confirms this: in the week of March 7th, gold saw its largest weekly outflow since October 2025 (US$1.8 billion); in contrast, the energy sector experienced its largest ever weekly inflow (US$7 billion). BofA Merrill Lynch cautioned that it is not advisable to expect a significant rebound in gold until the US dollar trend becomes clear. Currently, there are no clear reversal signals for oil prices and the dollar, and the S&amp;P 500 index has not yet fully corrected.
This explains why people feel that &#34;gold had surged like in the early 1970s and is now suddenly falling sharply.&#34; This is not because gold's long-term logic has failed, but rather because the market, in the current macroeconomic context, prioritized selling easily convertible assets, performing a &#34;liquidity ordering.&#34;
<h2>&#34;Stagflation&#34; Trading Needs to Be Viewed in Phases: Gold's Rhythm is Embedded in Three Logical Stages</h2>
Zhang Jiqiang's team divided the &#34;stagflation&#34; scenario into three phases. When viewed from a gold perspective, this framework is actually more instructive:
1 ) Phase 1: Trading &#34;Inflation&#34; — Gold is Not Necessarily Strongest, May Even Be Under Pressure
Energy prices push up inflation, central banks rapidly increase interest rates, and liquidity tightens. During this phase, commodities generally perform strongly, but gold may not outperform — because rising real interest rates and a strengthening dollar tend to suppress gold's performance. This is the macroeconomic background for the current gold pullback: not that inflation has disappeared, but that &#34;liquidity has become more expensive.&#34;
2 ) Phase 2: Inflation vs. Recession Tug-of-War — Gold Begins to Be Repriced
Economic slowdown prompts market expectations of policy shifts, and real interest rates peak. In this phase, gold typically begins to strengthen, as the market shifts from &#34;fighting inflation&#34; to &#34;fighting recession + policy errors.&#34; This is often the starting point for gold's true trend-based rise.
3 ) Phase 3: Recession Dominates — Gold Rally Nears Its End
Inflation declines, central banks cut interest rates, and a bond bull market begins. At this point, gold's logic gradually weakens, as systemic risks decrease, and funds shift to risk assets or interest-rate sensitive assets.
In summary: Gold is not simply an &#34;asset that benefits from stagflation,&#34; but rather an asset highly sensitive to the &#34;turning point of real interest rates.&#34;
If the current market is still oscillating between Phase 1 and Phase 2, then gold's volatility is essentially a premature trading of the uncertainty surrounding this turning point.
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The key to this framework is the &#34;order of turning points&#34;: policy bottom—rate peak—market bottom—inflation peak—economic bottom. If the market is indeed following the &#34;1970s script,&#34; it is currently oscillating between the first and second stages: fearing both a resurgence of inflation and that liquidity is already strangling risk assets.
<h2>Will the 2020s Lead to Stagflation or &#34;Inflationary Prosperity&#34;? For Gold, It's Essentially a Judgment of &#34;Oil Price x Dollar&#34;</h2>
The judgment by Michael Hartnett's team at Bank of America Merrill Lynch, while discussing macro paths, can be distilled into a more direct framework for gold:
Oil prices determine the height of inflation, and the dollar determines gold's elasticity.
<ul>
<li>Scenario 1: Conflict is brief, oil prices are controlled (&lt;$90)</li>
</ul>
Inflationary pressure is limited, the dollar may remain strong, and liquidity is not noticeably easing.
Gold: Primarily volatile, difficulty in establishing a trend
<ul>
<li>Scenario 2: Conflict escalates, oil prices surge ($100-120)</li>
</ul>
Risk of inflation spiraling out of control increases, and policy becomes more reactive.
Gold: Medium-term logic strengthens, but short-term pressure from the dollar may persist
In other words, gold does not simply follow oil prices higher, but depends on &#34;whether oil prices force policy to lose control.&#34; Only when the market begins to question the effectiveness of monetary policy will gold enter its strongest phase.
<h2>Fund Flows Are Already &#34;Reversing&#34;: What Does This Mean for Gold?</h2>
Hartnett's team proposed four &#34;market bottoming signals.&#34; Interpreted specifically from a gold perspective, these describe a typical process:
<ul>
<li>Large outflows from gold (occurred)</li>
</ul>
Indicates it has completed the &#34;liquidity ATM&#34; phase
<ul>
<li>Energy sector absorbing funds (happening now)</li>
</ul>
Indicates the market is still trading the &#34;first phase of inflation&#34;
<ul>
<li>Oil prices and the dollar have not yet fallen (not yet happened)</li>
</ul>
Means the suppressing factors for gold are still present
<ul>
<li>Risk assets have not fully bottomed out (not yet happened)</li>
</ul>
Means safe-haven demand has not truly returned to gold
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Therefore, gold's current status can be summarized as: it has completed its first round of adjustment, but the macroeconomic conditions that would &#34;drive its next rally&#34; have not yet arrived.
<h2>The True Lesson of the 1970s: Gold Was a Core Asset, but Its Rhythm Was Never Smooth</h2>
Caitong Securities' more detailed breakdown of industries, styles, and national performances in the 1970s is particularly crucial for understanding gold. Looking solely at the outcome—gold significantly outperforming over the long term—can easily lead to an oversimplified conclusion, but the true historical path was much more complex.
From the perspective of asset performance at the time, energy consistently served as the &#34;primary driver&#34; pushing inflation expectations upward. The stock market itself experienced frequent and sharp style rotations, and performance varied significantly among different countries. Against this macroeconomic backdrop, gold was not the leading asset in every phase; rather, it acted as a &#34;pricing main line&#34; that ran through the entire cycle.
Specifically, when inflation was just beginning to rise and the market was still trading on growth and demand expansion, cyclical commodities like energy often rose first, and gold's performance was not necessarily outstanding; however, as inflation remained high, monetary policy gradually lost its restraint, and the market even began to question monetary credit, gold entered its most explosive phase. By the time economic downturn pressures truly manifested and inflation began to fall, funds shifted to bonds and other interest-rate assets, and gold's relative advantage subsequently weakened.
In other words, while gold was one of the most successful assets in the 1970s, its rise was not linear. It was embedded in the rhythm of the repeated &#34;inflation—policy—growth&#34; game. This also implies that a linear extrapolation solely based on &#34;stagflation benefiting gold&#34; often underestimates the inevitable volatility and pullbacks during the process.
<h2>Back to the Present: Gold's Pullback Is More Like History &#34;Methodically&#34; Unfolding</h2>
Mapping the historical experience described above to the current market provides a more explanatory judgment: if the market is indeed operating according to the &#34;1970s script,&#34; then gold's recent decline is not a refutation of this narrative, but rather one of its most typical and easily overlooked segments—
Namely, the &#34;first significant pullback&#34; triggered by tightening liquidity and capital reallocation after a rapid rally.
In the current phase, oil price shocks are resurfacing, and inflation expectations are warming up. However, at the same time, the US dollar remains strong, real interest rates are high, and overall market liquidity is tight. In this environment, gold is being sold off preferentially, not because its long-term logic has been broken, but because it had accumulated significant unrealized gains during its previous rally, making it &#34;efficient to cash out.&#34;
Therefore, instead of dwelling on &#34;why gold is falling,&#34; it is more useful to focus on the key variables that will determine its next trend: whether oil price shocks will persist, pushing inflation into uncontrollable territory; when the US dollar will peak and real interest rates will begin a trend-based decline; and whether the market will evolve from simple liquidity tightening to the exposure of credit risk.
Only when these conditions are gradually met will gold be able to transition from its current role as a &#34;realizable asset&#34; back to a core holding that the market actively allocates to.
Until then, a more realistic path might be: gold will continue to experience a rhythm of &#34;rise—be cashed out—rise again&#34; amidst volatility. This is both a true reflection of the 1970s and potentially the market norm that investors must re-adapt to in this cycle.

GDXJ

NUGT

The current market is acting like it's following the "1970s stagflation" script: gold's recent sharp decline is not because it is failing, but rather a replay of the historical "mandatory pullback after a major rally" pattern; in the short term, gold will be treated as a "cash machine" for liquidity, but in the long run, it remains the only winner against inflation. The key going forward will depend on how long oil prices stay elevated and how long the dollar remains strong

- As Middle Eastern tensions rise, oil prices and inflation expectations are back in focus, leading to concerns about a potential repeat of 1970s stagflation.  
- Analysts, including a team from Huatai Securities, emphasize that historical patterns don't repeat exactly but suggest that gold, typically a safe haven asset, has recently seen declines due to liquidity tightening and profit-taking.  
- This situation reminds investors that if a 1970s-like scenario unfolds, they should be prepared for volatility in asset prices rather than blindly investing in gold.

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If the Market Is Holding the "1970s Script" and Gold Just Replayed Its "First Major Drop After the 1971-1973 Surge"