--- title: "\"Apocalypse Cycle\" and the Hedging Paradox: An Analysis of the Most Deadly Trading Pitfalls Today" type: "News" locale: "en" url: "https://longbridge.com/en/news/293755028.md" description: "The escalation of geopolitical conflicts has led to blockages in the Strait of Hormuz and the Strait of Mandeb, putting the global energy supply chain under double pressure. Oil prices have surpassed $100, triggering inflation fears and expectations of interest rate hikes, putting pressure on gold, strengthening the dollar, and causing the yen to fall to a 40-year low. Market sentiment has shifted from risk premium to panic over supply disruptions, with cross-asset volatility surging and the risk of extreme market conditions increasing" datetime: "2026-07-24T12:12:56.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/293755028.md) - [en](https://longbridge.com/en/news/293755028.md) - [zh-HK](https://longbridge.com/zh-HK/news/293755028.md) --- # "Apocalypse Cycle" and the Hedging Paradox: An Analysis of the Most Deadly Trading Pitfalls Today **Huitong Finance News -** As the smoke spreads from the Strait of Hormuz to the Bab el-Mandeb Strait, the global energy supply chain is facing a dual strangulation not seen in years. Oil prices breaking the $100 mark is just the beginning; the chain reaction of inflation expectations, central bank policies, and capital flows has only just begun. Does the yen's plunge to a 40-year low signal systemic risk? **Huitong Finance APP News -** On Friday (July 24), the geopolitical powder keg dominated market sentiment. The military confrontation between the U.S. and Iran escalated sharply, bringing the Strait of Hormuz to the brink of paralysis; the Houthis simultaneously blocked the Bab el-Mandeb Strait, putting Saudi oil exports in double jeopardy. Surpassing the $100 threshold reignited inflation fears and rate hike expectations, putting pressure on gold, while the dollar strengthened with risk aversion sentiment, and the yen fell to a 40-year low. Cross-asset volatility surged, and any minor disturbance could trigger extreme market conditions. ## Introduction As the smoke spreads from the Strait of Hormuz to the Bab el-Mandeb Strait, the global energy supply chain is facing a dual strangulation not seen in years. Oil prices breaking the $100 mark is just the beginning; the chain reaction of inflation expectations, central bank policies, and capital flows has only just begun. Does the yen's plunge to a 40-year low signal systemic risk? What hidden dangers lie in refined oil and the North American power grid? This article dissects the deadly intertwining of geopolitics, interest rates, and market sentiment, revealing the real risks lurking beneath extreme volatility. ## Core Analysis ## Crude Oil: Double Blockade in the Straits, Supply Panic at Full Throttle The U.S.-Iran conflict has severely obstructed passage through the Strait of Hormuz, while the Houthis have announced a blockade on Saudi vessels in the Bab el-Mandeb Strait. According to weekly reviews from major overseas institutions, the western export hub in Saudi Arabia has become a new target, with the country's oil export lifeline being choked from both directions. Approximately 20% of the world's oil passes through the Strait of Hormuz, and the Bab el-Mandeb Strait is also a critical chokepoint. Under this dual assault, near-month contracts have risen above $100 for the first time recently. Market sentiment has shifted from "risk premium" to "supply disruption panic." Any new attack declaration could trigger a pulse-like surge. However, extreme sentiment also implies vulnerability: should any diplomatic breakthrough signal arise, the premium could collapse rapidly, creating a severe two-way volatility trap. ## Gold: A Safe-Haven Asset Choked by Rate Fears The rapid rise in oil prices has significantly boosted inflation expectations, leading the market to quickly price in the likelihood of the Federal Reserve being forced to raise rates again. The probability of a rate hike in July jumped to 34%, and the actual yield on U.S. Treasuries has risen, increasing the opportunity cost of holding non-yielding gold. As a result, gold prices have retreated from highs to around $4030, maintaining intense fluctuations. However, geopolitical risks have not dissipated, and safe-haven buying has formed support at lower levels, preventing gold from collapsing. The current gold market is caught in a tug-of-war between "rate fears" and "ultimate safe-haven demand," with volatility activated. Should the conflict escalate and lead to panic selling in the stock market, gold could quickly reclaim its throne as a safe haven; however, if inflation data further strengthens a hawkish stance, gold prices will face short-term pressure ## Foreign Exchange: The Strong Dollar Crushes, Yen's Decline Issues a Warning Safe-haven demand combined with interest rate hike expectations is driving the dollar higher, putting pressure on non-US currencies such as the euro and pound. The most extreme case is the yen: breaking above 163, the yen has hit a 40-year low. Analysis from mainstream overseas institutions indicates that Japan is trapped in a policy "doomsday cycle"—with overly loose fiscal stance, insufficient monetary policy tightening, and the overly close relationship between the two raising market doubts about the central bank's independence. High oil prices further hit the yen, as Japan's energy is highly reliant on imports, and expectations of an expanding trade deficit have strengthened short-selling sentiment. Although the risk of intervention by the Bank of Japan is rising, before the fundamental policy credibility is restored, every rebound of the yen may be seen as a selling opportunity, and this trend itself serves as a warning of the global policy misalignment risk. ## US Treasuries: The Tug-of-War Between Inflation and Recession Fears The inflation panic triggered by crude oil is pushing up short-term US Treasury yields, with the 2-year yield leading the way, reflecting the market's bet on the Federal Reserve being forced to maintain high interest rates. However, if geopolitical conflicts continue to erode economic growth, long-end yields may be suppressed by inflows of safe-haven funds, leading to a flattening of the yield curve. Meanwhile, the UK government bond market remains relatively stable, with no significant volatility since the new prime minister took office, but mainstream overseas institutions point out that if he fails to boost the ruling party's electoral prospects, the risk of far-right parties coming to power will sharply increase, becoming a potential gray rhino for UK bonds and even the global fixed income market. US Treasury investors are closely watching the balance between inflation and real interest rates, as any unexpected data or escalation of conflicts could reshape expectations. ## Cross-Asset Hidden Risks: The Vulnerability of Refined Oil and Power Grids While most people focus on crude oil, the pressure in the refined oil market is more pronounced. Interruptions in Middle Eastern crude oil deliveries and drone attacks on Russian refineries amid the Russia-Ukraine situation are squeezing global refining capacity from both ends, with gasoline, diesel, and aviation fuel prices showing signs of volatility. On the other hand, smoke from over 70 large wildfires in the US severely weakens solar power generation, while high temperatures increase air conditioning loads, putting pressure on the power grid from both supply and demand sides, which may further exacerbate energy inflation. These easily overlooked chains could quickly turn into new macro trading themes, wrapping central bank policy space and amplifying the volatility of all inflation-sensitive assets. ## Trend Outlook In the short term, crude oil will maintain high-level volatility; any attacks on tankers or infrastructure will instantly ignite buying, while signs of diplomatic easing could lead to sharp declines. Gold will continue to oscillate between "interest rate fears" and "safe-haven premiums" in the short term, with breakthrough opportunities needing to wait for significant escalation of conflicts or a stock market crash. The dollar remains strong, and the yen's weakness is hard to change, with the USD/JPY exchange rate becoming increasingly insensitive to policy interventions. Short-end US Treasury yields tend to remain firm, while the long-end faces directional choices between inflation and recession expectations. In the long term, if the situation in the Strait of Hormuz remains blocked for several weeks, the probability of global stagflation will significantly increase. This scenario will initially support the dollar due to high interest rates, but may ultimately erode the dollar's credibility, providing structural upward momentum for gold. The vulnerabilities in refined oil and electricity supply may evolve into a persistent force affecting central bank policies In a high-uncertainty environment, maintaining flexibility is more important than betting on direction. ## Frequently Asked Questions **Why did gold fall despite escalating geopolitical conflicts?** The surge in crude oil raised inflation expectations, prompting the market to immediately price in the Federal Reserve being forced to raise interest rates, which weakened gold's appeal as a zero-yield asset due to rising real interest rates. However, safe-haven demand provided support at low levels, preventing a collapse in gold prices, which instead became trapped in intense back-and-forth trading. **Will crude oil continue to stay above $100?** It depends on the actual level of supply disruption in the Strait of Hormuz. If the threat of a blockade materializes into a sustained supply interruption, oil prices may seek a higher equilibrium zone; however, if diplomatic breakthroughs or ceasefire signals emerge, the panic premium could quickly dissipate, posing a risk of rapid decline. **What is the fundamental reason for the sharp decline of the yen?** Japan is caught in a policy dilemma: fiscal policy is too loose, monetary policy tightening is less than expected, and the independence of the central bank is being questioned by the market. High oil prices have widened the trade deficit, adding extra pressure on the yen. The market is forcing policymakers to make credible changes. **What is the next move for U.S. Treasury yields?** Inflation fears will support short-term yields, while long-term yields are suppressed by concerns over a potential economic recession, which may lead to a flattening of the yield curve. If the conflict escalates and leads to a sharp decline in the stock market, the downward pace of long-term yields will accelerate. **Where are the most hidden risks in the current market?** Tight supplies of refined oil and the impact of wildfires in North America on the power grid may be underestimated. 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