Gold’s fade shows investors ‘not fully positioned for a prolonged stagflationary impulse’ – BNY’s Savage

BNY’s Bob Savage flags that gold’s pullback last week (down ~3%, first weekly decline in five) alongside a sharp USD rebound (+1.7%, strongest in four years) suggests investors are not positioned for a sustained stagflation regime, despite a major energy shock backdrop. He argues gold remains viewed as an alternative to fiat, but momentum and demand have clearly faded. Savage ties the move to cross-asset pricing: bonds were shunned on concerns that higher energy costs could delay rate cuts in the U.S./U.K. and even revive hike risk in the EU. With oil up >20% and natural gas up >50% over the period, he says the market is repricing stagflation risk, yet gold is not responding in line with the historical oil-gold linkage. BNY’s risk sentiment gauge corroborates a cooling in risk appetite: iFlow Mood peaked pre-conflict at the 99th percentile and has since slid back to neutral (~64th percentile). Key trade implication: he expects pressure to rebuild for the oil-to-gold correlation to revert, implying either materially higher oil prices or lower gold prices from here. He also highlights oil as the primary transmission channel into inflation expectations, rates and FX—warning the dollar’s resurgence is reminiscent of the 2022 energy-crisis playbook, which can cap gold in the near term if USD strength persists. Savage adds that many investors are treating the conflict as “noise” and refocusing on underlying macro trends—raising the risk that gold underperforms if stagflation fears don’t translate into sustained inflows/positioning, even as energy-driven inflation risks remain elevated.