Gold and the Hormuz Disruption: A Monetary Stress Test

Theme and Background

This chapter focuses on the physical supply disruption to the global energy system caused by the actual closure of the Strait of Hormuz in March 2026, resulting from a US-Iran conflict. The report argues that this is not a traditional price shock but an extreme hard supply shock that cannot be easily resolved through market mechanisms or alternative routes, with its impact spreading from the energy sector to become a systemic macroeconomic and financial shock.

Core Thesis

The report's core judgment is that the energy shock triggered by the closure of the Strait of Hormuz is far more severe than historical events such as the 1970s oil embargo, the 1979 Iranian Revolution, or the 2022 Russia-Ukraine war. The key point is that most of OPEC's spare capacity lies on the western side of the strait (unable to be shipped out), while alternative pipelines (such as Saudi Arabia's East-West Pipeline and the UAE's Fujairah export terminal) can only replace a minimal portion of the lost volume and are themselves at risk of attack. Therefore, this shock cannot be resolved through rerouting, utilizing spare capacity, or releasing strategic reserves, forcing the market to adjust through demand destruction, sovereign balance sheet pressure, and policy constraints.

Key Arguments and Data

1. Strategic Importance of the Strait of Hormuz: Approximately 20% (about 21 million barrels per day) of global oil and gas exports normally pass through this strait. The report cites data from the U.S. Energy Information Administration (EIA), ranking it as the most critical chokepoint in the global energy system.

2. Limitations of Historical Comparisons: The report explicitly distinguishes this shock from the 1970s embargo, the 1979 Iranian Revolution, and the 2022 Russia-Ukraine war, emphasizing that this is a physical supply disruption that cannot be resolved through market mechanisms (e.g., rerouting).

3. Vulnerability of Alternative Routes: Saudi Arabia's East-West Pipeline and the UAE's Fujairah terminal can only replace a minimal portion of the lost volume and are themselves vulnerable to attack, making them ineffective alternatives.

4. Market Performance Data: The table below summarizes the performance of various asset classes in March 2026, showing that the energy shock has triggered cross-asset contagion selling.

Indicator	3/31/26	2/28/26	Change	Monthly Change	YTD Change	Analysis
Gold Spot	$4,668.06	$5,278.93	-$610.87	-11.57%	8.07%	Largest monthly decline since October 2008
Silver Spot	$75.17	$93.79	-$18.62	-19.85%	4.89%	Largest monthly decline since September 2011
NYSE Arca Gold Miners Index (GDM)	2,602.47	3,299.41	-696.94	-21.12%	6.53%	Largest monthly decline since July 2015
Bloomberg Commodity Index (BCOM)	135.25	121.68	+13.56	+11.15%	23.30%	Largest monthly gain since May 2009
US Dollar Index (DXY)	99.96	97.61	+2.35	+2.41%	1.67%	Testing key resistance level
S&P 500 Index	6,528.52	6,878.88	-350.36	-5.09%	-4.63%	Largest monthly decline since March 2025
US 10-Year Treasury Yield	4.32%	3.94%	+0.38%	+38 bps	+15 bps	Testing key level
Silver ETF Total Holdings	798.20	834.04	-35.28	-4.30%	-7.58%	Returned to September 2025 level
Gold ETF Total Holdings	97.89	100.92	-3.03	-3.00%	-1.07%	Returned to December 2025 level

5. Liquidity Drain and Forced Selling: The core reason for gold's sharp decline was a liquidity drain, not a change in fundamentals. The report points out that two events occurred simultaneously: 1) GCC oil producers lost their steady stream of oil revenue due to the strait closure, eliminating a persistent source of gold buying; 2) Large investment funds engaged in deleveraging and de-risking operations. Gold hit an intraday low of $4,099.17 on March 23 (occurring during the thinnest liquidity in the overnight market, with both Chinese and European markets closed), before rebounding to $4,668.06, recovering approximately two-thirds of the decline from the $5,000 level.

Companies/Assets Involved

• Gold Spot: The report is bullish on the long-term thesis, arguing that the March crash was a liquidity-driven forced sell-off, not a change in fundamentals. The long-term bullish logic remains intact, and increased financial stress will strengthen its safe-haven status.
• Silver Spot: The report is bullish, believing that energy insecurity accelerates solar demand, providing new structural growth drivers for silver.
• NYSE Arca Gold Miners Index (GDM): Fell 21.12% in March, the largest monthly decline since July 2015, but the report implicitly suggests its long-term logic aligns with gold.
• Bloomberg Commodity Index (BCOM): Rose 11.15% in March, the largest monthly gain since May 2009, reflecting the energy shock pushing up commodity prices.
• US Dollar Index (DXY): Rose 2.41% in March, testing a key resistance level, reflecting dollar strength due to the energy shock (driven by a hawkish repricing of interest rate expectations).
• S&P 500 Index: Fell 5.09% in March, the largest monthly decline since March 2025, indicating that equities began to fall in tandem with bonds late in the month, eroding diversification benefits.
• US 10-Year Treasury Yield: Rose 38 basis points to 4.32% in March, reflecting rising inflation expectations and a hawkish shift in rate expectations.
• Gold ETF Total Holdings: Fell 3.00% to 97.89 in March, returning to December 2025 levels, indicating investor selling under liquidity pressure.
• Silver ETF Total Holdings: Fell 4.30% to 798.20 in March, returning to September 2025 levels, also reflecting selling pressure.

Investment Implications

• Gold's Long-Term Bullish Thesis Remains Intact: The March crash was a liquidity event, not a change in fundamentals. Investors should focus on the possibility that central banks may be forced to increase liquidity (due to the dilemma of rising inflation and slowing growth), which will support gold's role as a store of value and global monetary anchor. Increased financial stress actually strengthens its safe-haven status.
• Silver Gains New Structural Growth Drivers: Energy insecurity accelerates solar demand, elevating silver's strategic importance. Investors can focus on silver's long-term demand growth in the clean energy transition.
• Beware of Systemic Risks from the Energy Shock: The closure of the Strait of Hormuz could escalate geopolitical tensions into a systemic macroeconomic shock, pushing up inflation, tightening liquidity, and triggering a global repricing of risk assets. Investors should assess their portfolio's exposure to energy supply disruptions and consider increasing allocations to physical assets (e.g., precious metals).
• Monitor the Potential for Central Bank Policy Shifts: The report argues that central banks face a dilemma between rising inflation and slowing growth and may be forced to increase liquidity. Investors should monitor central bank policy signals; if liquidity increases, it will directly benefit hard assets like gold.

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Theme and Background

This chapter explores how a prolonged closure of the Strait of Hormuz could evolve from an energy shock into a systemic financial crisis. The report argues that the collision between physical shortages and financial leverage will force central banks to choose between dysfunctional bond markets and injecting inflationary liquidity, ultimately leading to a nonlinear repricing of asset prices.

Core Thesis

The author's core judgment is that the Hormuz crisis is not a mere oil price surge, but a non-financial shock transmitted through balance sheets, with a path highly similar to the 2020 COVID crisis. The counterintuitive point is that the short-term strengthening of the U.S. dollar is a mechanism for crisis contagion, not a stabilizer; the short-term sell-off in gold is a liquidity-driven forced action, after which gold will re-establish its role as a monetary anchor.

Key Arguments and Data

1. Transmission Chain of the Energy Shock

The report proposes a nonlinear transmission sequence, consistent with the COVID-19 and Global Financial Crisis:

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Energy Shock → Inflation/Growth Shock → Sovereign Bond Stress → Credit Repricing → Forced Asset Sales → Liquidity Intervention (QE)

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2. Key Supporting Data

• Natural Gas: Approximately 17% of Qatar's Ras Laffan LNG facility output (about 3% of global supply) could be offline for years, embedding long-term stagflation risk.
• Crude Oil: 8-10 million barrels per day of capacity are already offline, with slow restart and operational risks.
• Refined Products: Asian refined product prices have more than doubled (see Figure 3, 2024-2025 data).
• Tech Capital Expenditure: Hyperscale data centers may commit nearly $1.5 trillion in asset-intensive, energy-intensive capex over the coming years.

3. Comparative Data Table: Crisis Transmission Phases

Phase	2020 COVID Crisis	2026 Hormuz Crisis
Initial Shock	Pandemic lockdowns	Physical energy shortage
Transmission Mechanism	Demand collapse	Supply disruption + inflation
Policy Constraint	Ample easing room	Inflation limits easing
Asset Reaction Sequence	Credit → Rates → Equities	Rates → Credit → Equities
Gold's Role	Liquidity source → Safe haven	Liquidity source → Monetary anchor

Companies/Assets Involved

• QatarEnergy: Qatar's state-owned energy company; damage to its Ras Laffan facility would durably reduce global gas supply (bearish impact).
• Hyperscalers: Face nearly $1.5 trillion in energy-intensive capex commitments, vulnerable under energy shock (bearish).
• U.S. Treasuries: Energy-importing countries forced to sell for USD liquidity, similar to the 2022 UK gilt crisis but on a larger scale (bearish).
• Emerging Market Sovereign CDS: Foreign exchange reserves depleted to pay for USD-denominated energy imports, credit default swap spreads widen (bearish).

Investment Implications

1. Short high-yield bonds and leveraged industrial credit: Energy and material costs compress margins; credit markets will fall before equities.

2. Short energy-intensive tech stocks: Hyperscale data center capex faces disruption risk under energy shock, breaking the AI growth narrative.

3. Long USD but hedge: The dollar strengthens short-term due to liquidity demand, but a strong dollar itself exacerbates emerging market crises and feeds back into bond markets.

4. Buy gold on dips: Short-term forced selling creates entry windows; subsequent QE injections will shift gold from a liquidity source to a monetary anchor.

5. Long energy and industrial commodities: Physical shortages dominate pricing; fertilizers, sulfur, metals, and chemicals will follow crude oil and natural gas higher.

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Theme and Background

This chapter focuses on the evolution of the global financial system from a liquidity shock to systemic stress under a prolonged closure of the Strait of Hormuz, and the shifting role of gold and silver in this process. The report argues that energy scarcity will force central banks to choose between inflation and growth, ultimately leading them to inject liquidity to alleviate pressure, thereby reshaping gold’s status as a monetary anchor.

Core Views

• Gold’s short-term weakness is liquidity-driven, not a fundamental shift: In the early stages of stress, energy-importing countries and companies sell gold to obtain US dollar liquidity, causing gold prices to fall, but this phase is temporary.
• As stress persists, gold will shift from financial asset pricing to sovereign credit pricing: When energy inflation becomes a structural factor and sovereign bond markets become unstable, gold will no longer be tied to interest rates or real yields, but rather to sovereign credibility, foreign reserve adequacy, and settlement pressure.
• Silver’s long-term bullish logic is strengthened by energy security needs: Despite silver’s 19.85% plunge in March, the accelerated deployment of solar photovoltaics (driven by energy insecurity) will create structural demand, offsetting short-term price volatility.

Key Arguments and Data

1. Gold’s Phased Performance:

• Early Stress Phase: Gold falls due to liquidity selling, similar to the patterns in 2008 and 2020—prices first plummet, then rebound after liquidity injections.
• Systemic Stress Phase: Gold begins to outperform stocks and long-term bonds, even as the US dollar remains strong.
• Policy Resolution Phase: Central banks tend to choose liquidity injections (rather than tightening), causing gold to transition from an asset to a “reference point”—a neutral reserve collateral. Since marginal settlement demand in energy markets far exceeds the physical gold market, repricing could occur rapidly.

2. Silver’s March Plunge and Bottom Signals:

Indicator	Data
March closing price	$75.17/oz
Monthly decline	-$18.62 (-19.85%)
Historical comparison	Largest monthly decline since September 2011
Technical pattern	Falling wedge (exhaustion pattern), price consolidating above the 200-day moving average
Options positioning	Extreme positions normalizing, implied/realized volatility retreating from +100
Call/put skew	Has fallen to put pricing
CFTC silver long positions	Near 12-year lows

3. Silver and Energy Security:

• Solar photovoltaics are a key source of demand for silver, and silver’s conductivity makes it nearly irreplaceable in photovoltaic cells.
• Historical pattern: After each energy crisis (e.g., the 1970s, 2008), renewable energy investment accelerated, as policy shifted from cost optimization to resilience and domestic control.
• Current environment: High oil prices and unreliable supply chains are driving energy-importing regions to deploy solar power ahead of schedule, creating “security-driven structural demand” for silver.

Companies/Assets Involved

• Gold: As “outside money”—a neutral, liability-free collateral usable across jurisdictions with monetary and political constraints. The report is bullish on gold’s long-term role.
• Silver: Driven by solar demand but under short-term pressure from liquidity selling. The report believes its fundamental bullish logic remains intact, and the current price decline represents a buying opportunity.
• Energy Exporters/Importers: Exporters demand non-freezable payment methods (e.g., gold), while importers accept higher prices in exchange for supply security, leading to settlement fragmentation and the emergence of a “Petrogold” system.

Investment Implications

• Gold: Under a prolonged closure of the Strait of Hormuz, gold will be repriced as a global monetary anchor. Investors should ignore short-term liquidity selling and increase gold holdings as a hedge against sovereign credit risk. When central banks are forced to inject liquidity, gold will significantly outperform bonds and stocks.
• Silver: The current price plunge (with CFTC long positions near 12-year lows) and extreme bearish sentiment in the options market may present a contrarian buying opportunity. Structural growth in solar demand (driven by energy security) will support long-term prices. It is recommended to gradually build positions after technical bottoms are confirmed.
• Risk Warning: If the Strait of Hormuz is quickly reopened, the above logic may fail, but the report considers this probability low.