Gold, Bonds, and Bitcoin: The Three Truths Revealed About Financial Markets

Author: Anthony J. Pompliano, Founder and CEO of Professional Capital Management; Translated by Shaw Golden Finance

Gold, bonds, and Bitcoin are reflecting the true trends of the current financial market. Recently, we saw gold prices plummet to $4,100 per ounce, bond prices continue to rise, and Bitcoin has increased by about 8% since the conflict began.

So why is all this happening? What do these three asset classes imply about the future direction?

Let’s start with bonds. For years, trillions of dollars have flowed into the U.S. Treasury market. U.S. Treasuries are extremely attractive to investors due to their high liquidity, near-zero credit risk, predictable returns, and tax advantages at the state and local levels. Typically, during times of heightened uncertainty, the demand for safe havens pushes Treasury prices higher and suppresses yields.

This demand stems from investors wanting to avoid the potential significant losses associated with stocks and corporate bonds. The U.S. government is widely regarded as the ultimate safety net in the financial markets, making Treasuries the lowest-risk asset.

However, during the Iran conflict, market trends have been completely contrary: Treasury yields are rising, and prices are falling. The reason is the sharp spike in oil prices, which has brought about typical stagflation risks. Stagflation risks prevent the Federal Reserve from cutting interest rates, and inflation fears have resurfaced. These inflation concerns have altered investors’ decision-making logic, causing them to refrain from pushing Treasury prices higher and lowering yields.

Since February 28, U.S. Treasuries have actually been one of the worst-performing major assets, which is completely contrary to conventional market logic.

But what if this abnormal performance in the bond market is accompanied by a rare extreme threat? What if buying U.S. Treasuries could invite missile attacks?

This is not a hypothetical scenario. Last night, the Speaker of the Iranian Parliament issued an extremely worded tweet, stating:

“Financial entities funding the U.S. military budget, other than military bases, are legitimate targets for attack. U.S. Treasuries are soaked with the blood of the Iranian people. Purchasing these bonds is equivalent to inviting attacks on your headquarters and assets.

We are monitoring your portfolios. This is an ultimatum.”

How serious is this threat? I cannot judge. However, the idea that financial institutions could become targets for a country engaged in direct military conflict with the U.S. is unsettling. Will this statement deter people from buying U.S. Treasuries? Probably not. But stranger things have indeed happened in history.

This latest threat is just another example of Iran’s strategy in responding to the current conflict. They have been continuously launching missiles and drones at U.S. military bases and energy facilities in several neighboring countries in the Middle East, blocking the Strait of Hormuz, and attacking numerous vessels attempting to traverse these dangerous waters. Just this past weekend, Iran also threatened to cut the underwater internet cables in that strait.

This strategy reminds me of a long-circulated Reddit post explaining why one should never engage with irrational people: “Never argue or confront someone who is unpredictable, mentally unstable, or unreasonable. Such individuals often lack restraint and will use ‘despicable’ means to pull you down to their level; no matter the outcome, you will lose. They are more dangerous precisely because they are unpredictable and fearless.”

This unpredictability, combined with their intent to cause maximum destruction, puts the U.S. in an extraordinary situation. We could stop bombing their country and declare victory at any time, but we cannot guarantee that Iran would cease attacks on neighboring countries or abandon its nuclear weapons development.

During times of escalating uncertainty like this, gold prices should logically rise quickly. Investors often turn to safe-haven assets while hoping to hedge against the currency devaluation risks caused by war financing. However, this time around, the situation is different.

Gold prices have plummeted, dropping about 13% since the conflict began. Some attribute this sell-off to the possibility of the Federal Reserve raising interest rates, but I disagree with that perspective. I tend to believe that individuals, institutions, and nations in the Eastern world are facing a liquidity crisis.

It is these groups that have been buying gold heavily over the past two years. Therefore, against the backdrop of a strengthening dollar, these gold holders are likely selling gold out of liquidity needs, as it’s the easiest way to raise cash.

This brings us to Bitcoin. This cryptocurrency has emerged as an overlooked winner in this conflict. According to Ash Crypto, “Since the outbreak of the U.S.-Iran conflict 23 days ago, Bitcoin has outperformed gold by 34%.”

This strong performance is driven by multiple factors, but I genuinely believe that the world is realizing the enticing characteristics of Bitcoin as a non-sovereign, decentralized asset—it can be moved anywhere in the world in seconds. In the future world we are stepping into, a means of storing value that does not rely on air transport is undeniably attractive.

Therefore, before this war ends, my judgment is: oil prices will continue to rise, bonds and gold will remain under pressure, and Bitcoin will outperform other value storage assets. This may not be what investors anticipated before the outbreak of the conflict, but it is the reality. Textbook theories do not change the real market.

Remember this: once the Iran war ends, financial markets will undoubtedly rebound sharply. Last Friday evening, President Trump indicated to reporters that the U.S. would gradually end the conflict, and immediately, the stock market surged almost instantly in after-hours trading, which is clear evidence.

So investors are now engaged in a game of courage. How much drawdown are we willing to endure to bet on the Trump administration’s impending ceasefire? We all know that holding a position when the tide turns can yield substantial returns, but timing it perfectly is nearly impossible. This means you either endure a portfolio drawdown or stand aside and bear the risk of missing out on the rebound.

Every investor has different strategies. But one thing is certain… The movements of financial assets are being influenced by bombs in the Middle East, domestic oil prices, and the tweets of the person in the White House. Living in this era is truly remarkable.