In-depth Analysis: Three Key Future Turning Points in the Middle East Conflict

Over the past two days, the entire market could be said to have been forced to swing back and forth with news from the Middle East. Gold has warmed up, and those who bottom-fished at 4100 are in luck. Actually, there's not much to say about the recent market movements; the basic analytical logic is similar to the past few days. So today, I'll mainly talk to everyone about the full picture of the Middle East conflict, how this conflict has reshaped the market's pricing logic, and my guess on what might happen next.

1. How has the war distorted the pricing anchor?

The current market is completely held hostage by geopolitical news, having lost its fundamental anchor. This is a typical sentiment-driven market, not a trend-driven one. Gold's anchor has been distorted from geopolitical safe-haven to inflation and interest rates. The escalation of the war recently led to a plunge in all risk assets. At this point, institutional margin accounts faced forced liquidation, so gold's role transformed, becoming the only quick cash-out ATM for institutions. It's not that gold is weak, but liquidity collapsed first, a point mentioned before. US stocks also suffered severe volatility during this period, with the Nasdaq under the most pressure. Because the anchor for tech stocks shifted from industry fundamentals to crude oil prices. The blockade of the Strait of Hormuz sent oil prices soaring, and attacks on various energy facilities created a severe supply-side gap, while demand hasn't decreased. When oil prices rise, inflation expectations spread through the market, leading the Fed to be unable to cut rates, naturally putting pressure on tech stocks.

2. Possible future developments

No matter where the situation heads, the short-term geopolitical premium in the Middle East can no longer return to pre-war levels. The market's path forward mainly depends on supply issues in the crude oil market.

First possibility: Conflict persists, challenging oil storage limits

The blockade has lasted about 20 days. If it exceeds the 25-day oil storage limit of Middle Eastern oil-producing countries, this means that even if hostilities ease or end, supply itself won't recover quickly. The transmission of inflation has partially occurred, but the overall impact is still controllable. Due to IEA regulations, major developed countries must hold at least 90 days of strategic petroleum reserves. If the situation drags on beyond 90 days, the world will be forced to use this final buffer on a large scale, and panic will reach an uncontrollable level. If the stalemate reaches 150 days, a global "stagflation" will fully erupt, and the Fed might even be forced to restart its rate-hiking process. This is the worst-case scenario for all risk assets.

Second possibility: Situation eases

Even if a ceasefire is implemented, oil prices will fall but won't return to pre-war levels because damaged energy facilities need time to repair. Gold and stocks will see a rebound, but since the Fed's monetary policy is unlikely to turn completely dovish in the short term, inflationary pressure will only ease, not disappear. So, regardless of the path, the rules of the game for the entire market in the short term are unlikely to return to the past. This war has already changed the underlying structure of energy, inflation, and interest rates. So, everyone just needs to wait quietly for five days for a definitive piece of news to arrive, and I will bring you the latest analysis as soon as possible.

The above content represents personal views only and does not constitute investment advice. Give Vivian a follow, and I wish everyone that what you buy goes up and what you sell goes down~