Markets remain dominated by the US–Iran conflict and its global spillovers, with energy shocks, supply chain disruptions, and policy uncertainty driving cross-asset volatility. Oil price swings, equity drawdowns, and shifting currency dynamics reflect a market struggling to price both escalation risk and potential de-escalation scenarios. We still think this conflict will be short-lived. In this note, we assess the transmission channels across one key mechanism: petrodollar and gold, and outline a framework to navigate the current regime of geopolitical-driven markets. 

At the same time, fragilities are building beneath the surface. Banks have tripled lending to private equity and credit since 2018 to over $300 billion, effectively introducing leverage into vehicles already exposed to highly leveraged companies. While stress is emerging — with default rates rising and redemption pressures appearing — the structure remains contained relative to 2008, with gating mechanisms acting as circuit breakers rather than amplifiers. 

The risk is not private credit in isolation, but its interaction with macro shocks. A combination of rising defaults, sustained oil volatility, or pressure on tech cash flows could turn localized stress into a broader tightening of financial conditions. This interaction is where investors should focus, 

The petrodollar constraint, or why gold can fall before it rises 

The prevailing narrative frames gold as a one-way hedge against monetary disorder, geopolitical fragmentation, and financial instability. This view is directionally correct but incomplete. The overlooked mechanism is the persistence — and tactical reassertion — of the petrodollar system, which can generate sharp counter-trend moves in gold. 

The petrodollar system creates structural demand for USD through global energy trade settlement. When this system tightens — whether via higher real rates, stronger dollar liquidity, or geopolitical alignment around USD settlement — global capital is pulled back into dollar assets. This process is inherently deflationary for gold in the short term: liquidity preference shifts toward yield-bearing USD instruments, real rates rise, and the opportunity cost of holding gold increases. 

This dynamic explains why gold can decline even in a structurally bullish environment. Periods of dollar strength, often triggered by policy tightening, energy market stabilization, or coordinated geopolitical pressure, act as temporary resets. In such phases, gold is not repriced as a hedge against disorder, but as a non-yielding asset competing with increasingly attractive real returns. 

However, this mechanism does not invalidate the broader thesis — it reinforces it. The same forces that sustain the petrodollar system are becoming more fragile. Trade fragmentation, tariff instability, and the gradual weaponization of financial infrastructure are incentivizing diversification away from USD dependence. Simultaneously, the expected shift in US monetary policy toward growth and strategic industrial objectives introduces long-term debasement risks.  

The result is a two-speed regime for gold. In the short term, gold is subordinated to dollar liquidity cycles and real rate dynamics — and can experience sharp drawdowns when the petrodollar system tightens. In the medium to long term, gold reasserts itself as a reserve asset in a world where monetary credibility, geopolitical alignment, and financial stability are all deteriorating. 

The investment implication is clear: gold should not be treated as a linear trade, but as a convex hedge. Structural allocation remains warranted (figure 1, but positioning must account for tactical drawdowns driven by dollar strength. Investors should accumulate gold during periods of USD tightening and real rate spikes, not chase it during crisis peaks. 

Fig. 1 – Gold on a support?

source:TV

Private credit: contained risk, not systemic, but poor timing for risk addition 

Banks have tripled lending to private equity and private credit since 2018 to over $300 billion (figure 2), effectively introducing leverage into a segment already exposed to highly leveraged companies. The result is a layered risk structure: leverage on top of leverage. Stress is now visible. Default rates have risen to an effective 4–5% (including distressed exchanges), and large vehicles such as Blackstone’s BCRED are beginning to face redemption pressure. 

However, this is not 2008. The current system lacks the scale and amplification mechanisms that defined the global financial crisis. In 2008, synthetic CDOs and CDS structures transformed roughly $1.2 trillion of subprime exposure into a multi-trillion-dollar systemic event, with derivatives acting as accelerants. No equivalent transmission mechanism exists today. Importantly, private credit structures include gating provisions, allowing funds to slow or halt redemptions — effectively acting as circuit breakers rather than amplifiers. The adjustment process is therefore gradual, not explosive. 

Fig. 2 – Bank lending to private equity business-development companies & credit funds

source:FED

The view here remains that private credit is not inherently unstable, but context-dependent. In isolation, the macro impact remains modest (figure 3): Goldman Sachs estimates a drag of only 0.2–0.5% on GDP. The real risk emerges from coincidence of shocks. A rise in defaults alongside a cyclical slowdown, persistent energy-driven inflation from geopolitical tensions, or pressure on software cash flows from AI disruption could turn contained stress into a broader tightening of financial conditions. 

Three indicators should be closely monitored. First, default rates in tech-heavy portfolios breaching 8% would signal a transition from cyclical stress to structural impairment. Second, any withdrawal of bank-provided credit lines to private credit managers would remove a key liquidity backstop. Third, a shift in the investor base — with retail capital replacing institutional outflows — would mark late-cycle deterioration in capital quality. 

Investment implication: this is not a systemic crisis, but it is also not an environment to add risk. Spreads do not yet fully compensate for the potential interaction with macro shocks, and liquidity optionality is asymmetrically skewed to the downside. Existing exposures can be maintained selectively, with a bias toward higher-quality borrowers and managers with strong structuring discipline. However, incremental capital deployment into private credit should be approached cautiously until either spreads widen materially or macro uncertainty clears. 

In short, private credit remains a slow-burn risk, not a sudden rupture — but in the current environment, patience is a more valuable asset than yield 

Fig. 3 – The macro impact of the credit risk

source:Go