Geopolitical Turmoil vs. Rate Cut Expectations: Analyzing the Divergence Between Gold and Crude Oil

Entering the second quarter of 2025, global financial markets are once again entangled in a complex interplay of bullish and bearish forces. On one hand, escalating geopolitical risks in the Middle East and Eastern Europe are fueling risk aversion. On the other, expectations for a Federal Reserve rate cut are oscillating between inflation data and employment reports, weighing on risk assets. Against this backdrop, traditional safe-haven gold and the commodity bellwether crude oil have charted starkly different paths: gold prices have trended upward, repeatedly hitting record highs, while crude oil prices have been constrained by the tug-of-war between demand outlook and supply expectations, oscillating in a range or even posting modest pullbacks. This divergence is a hallmark of the derivatives market under the dual influence of geopolitical conflict and monetary policy expectations.

Reshaping Safe-Haven Logic: Gold's 'New Anchor'

Gold, the oldest safe-haven asset, is undergoing a profound shift in its pricing logic. Historically, gold prices were primarily driven by real interest rates and the strength of the U.S. dollar. Recently, however, geopolitical risk premiums have significantly increased, becoming a 'new anchor' for gold pricing. Since late 2024, conflicts in the Middle East have escalated, compounded by uncertainties in Eastern Europe, leading global central banks to maintain high gold purchases for multiple consecutive quarters. According to the World Gold Council, net central bank gold purchases exceeded 1,000 tonnes in 2024, a record high. This structural buying has provided solid support for gold prices.

Meanwhile, the fluctuating expectations for a Fed rate cut have amplified gold's volatility. Although U.S. inflation data rebounded in early 2025, the market widely expects the Fed to begin a rate-cutting cycle in the second half of the year. Data from the CME FedWatch tool shows that the probability of a rate cut in June once exceeded 60%. Rate cut expectations lower real interest rates, reducing the opportunity cost of holding gold and attracting capital into gold ETFs and futures markets. This dual driver of 'safe-haven + rate cut' propelled gold to break historical highs multiple times in the first quarter of 2025, making it one of the best-performing asset classes.

Supply-Demand Tug-of-War: Crude Oil's 'Double Pressure'

In stark contrast to gold's strength, crude oil prices have recently been relatively weak. While geopolitical conflicts theoretically increase the risk of supply disruptions, market concerns about a slowdown in global economic growth are more pronounced. According to the International Energy Agency (IEA), global oil demand growth is expected to slow to below 1 million barrels per day in 2025, well below 2024 levels. Manufacturing PMIs in major economies remain in contraction territory, particularly in Europe and parts of Asia, where economic data has fallen short of expectations, casting a shadow over the oil demand outlook.

On the supply side, internal disagreements within OPEC+ over production increases are becoming increasingly public. Reports indicate a clear rift between Saudi Arabia and Russia on whether to further increase output, while U.S. shale oil production hit a new high in the first quarter of 2025. This combination of 'weak demand + supply elasticity' has made it difficult for crude oil prices to break out of their range. Although geopolitical conflicts occasionally trigger short-term spike rallies, each surge has quickly faded, indicating that the market's pricing of supply disruptions has become more rational. As of April 2025, Brent crude and WTI crude oil prices have changed little from the beginning of the year, contrasting sharply with gold's robust performance.

Divergence Signals in the Derivatives Market

The divergence between gold and crude oil is particularly evident in the derivatives market. Gold futures open interest has continued to climb, with speculative long positions reaching multi-year highs. In the options market, call options are actively traded, and implied volatility remains elevated. This reflects a broadly optimistic market outlook for gold, with expectations that geopolitical risks and rate cut expectations will continue to support prices.

In contrast, open interest in crude oil futures has been declining, with speculative net long positions falling for several consecutive weeks. In the options market, implied volatility for put options is higher than for calls, indicating greater market concern about downside risks for crude oil. This divergence is not only evident in price levels but also in capital flows and market sentiment. The divergence between gold and crude oil essentially reflects the market's pricing of two different logics: 'safe-haven' versus 'growth.'

Future Outlook: Can the Divergence Persist?

Looking ahead to the second quarter and the second half of 2025, whether the divergence between gold and crude oil will continue depends on two core variables: first, whether geopolitical risks will escalate further, and second, the pace of Fed rate cuts and the strength of the global economic recovery. If geopolitical conflicts show signs of easing, gold's safe-haven premium could quickly diminish; conversely, if conflicts persist, gold prices still have upside potential. For crude oil, if OPEC+ ultimately reaches an agreement to increase production, or if global economic data shows significant improvement, oil prices may face a directional move.

Overall, the current divergence between gold and crude oil is a phase-specific outcome of the interplay of multiple factors. When participating in related derivatives trading, investors should closely monitor geopolitical developments, central bank policy signals, and changes in supply-demand fundamentals, adjusting their strategies flexibly.

Risk Warning

The above content is for reference only and does not constitute investment advice. Derivatives trading carries high risk and may result in loss of principal. Investors should make prudent decisions based on their own risk tolerance.