It’s one of the most confusing things happening in markets right now. There’s a war raging in the Middle East. Oil prices are surging. Inflation fears are climbing. Global markets are rattled. And gold – the asset people have run to in every crisis for thousands of years – is falling?
Not by a little. Since the Iran conflict began on February 28, gold has dropped over 16% from its highs, capping what analysts are calling its worst month since October 2008.
So what’s going on?
Gold did what it was supposed to – at first
When US and Israeli forces struck Iran, gold initially behaved exactly as the textbooks say it should. It surged above $5,400 per ounce within days of the conflict starting, as investors piled into the classic crisis trade.
And then it stopped. And then it reversed and continued to fall.
That sequence is deeply counterintuitive, but it’s not unprecedented. Gold did something similar after Russia invaded Ukraine in 2022. It spiked, then sold off. The pattern is more common than most people realise, and understanding why it happens is the key to knowing what gold is telling you right now.
The dollar is gold’s shadow
Firstly, gold is priced in US dollars. That matters.
When a global crisis hits, the world’s first instinct isn’t to buy gold, it’s to buy dollars. The US dollar is the world’s reserve currency, the one used to price oil, global shipping, and international trade. In a crisis, everyone needs dollars. So, the dollar strengthens.
When the dollar strengthens, gold (priced in that same dollar) becomes more expensive for everyone buying it in euros, yen, rupees, or rand. That reduces demand from international buyers, which weighs on the price.
Right now, the dollar is strong. And that’s part of why gold is weak, even as the headlines scream crisis.
The interest rate trap
There’s a second factor working against gold, and it’s arguably more powerful: interest rates.
Gold doesn’t pay interest. But when interest rates are high – when you can earn a meaningful return just by holding government bonds – the cost of owning gold becomes real.
Investors start asking: why hold something that pays no interest when I can earn 4% or 5% in Treasuries (Bonds)?
The Iran war has done something particularly awkward here. By driving oil prices sharply higher, it has fed inflation fears. And inflation fears push central banks toward keeping rates higher for longer. The Federal Reserve held rates steady at its most recent meeting and rate cut expectations have been pushed out further.
Higher rates, a stronger dollar, and gold under pressure is the typical classic squeeze on a non-yielding asset.
The liquidity flush…
The third reason is key.
Gold is one of the most liquid assets in the world. In normal times, that’s a strength. You can sell it easily, at any time. But in a crisis, that liquidity becomes a liability.
When markets panic, investors don’t just sell their worst-performing assets. They sell their best-performing ones too – because those are the ones they can sell for a profit. Gold had an extraordinary run in 2025, rising 65% in a single year. That meant a lot of investors were sitting on large gains heading into this crisis.
When equity markets began falling and margin calls came in, those investors needed cash fast. Gold was the obvious source. The SPDR Gold Trust (the world’s largest gold ETF) recorded a single-day outflow of nearly $3 billion in early March, one of the largest on record. That kind of forced selling overwhelms safe-haven instincts in the short term.
This phase has a name: a liquidity flush. It happens at the start of almost every major market shock. Gold gets sold not because the case for owning it has changed, but because
it’s the most convenient thing to sell.
What this means for gold investors…
None of the long-term reasons to own gold have disappeared.
The fundamental thesis – geopolitical fragmentation, government debt spiralling out of control, central banks diversifying away from the dollar, structural inflation risks – hasn’t changed. It has intensified.
JP Morgan currently forecasts gold at $6,300 per ounce by end of 2026. Meanwhile, Deutsche Bank has a $6,000 year-end target. So, there’s a consensus that the macro conditions which drove gold’s remarkable 2025 run are still firmly in place.
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