Gold prices down 18% since Iran war! Why yellow metal is not acting as safe haven this time

Gold, typically a go-to safe-haven in times of uncertainty, has taken an unusual turn this time. The yellow metal has plunged nearly 18%, eroding about Rs 29,000 per 10 grams in value, even as investors navigate geopolitical tensions amid the intensifying conflict in West Asia.

The war, now in its 24th day, has seen sustained military exchanges between the United States, Israel and Iran. Over this period, crude oil, the world’s most critical commodity, has surged past the $110 mark, rattling global markets. Under normal circumstances, such a backdrop would lend strong support to precious metals.

This time, however, the trend has broken. Gold slid more than 5% on Monday, reaching its weakest level of 2026 after logging its worst week in about 43 years as the Mideast war stoked inflation fears.

Here’s why investors aren’t holding onto gold

US Dollar gains cap buying: A key factor weighing on gold right now is the renewed strength of the US dollar. In times of geopolitical uncertainty, investors tend to move not just into gold but also into the dollar, which offers deeper liquidity and wider global acceptance. The US Dollar Index (DXY) has climbed sharply from around 97 in mid-February to 100.15 by mid-March, highlighting strong safe-haven inflows into the greenback.

Since gold is priced in dollars, a stronger currency makes bullion more expensive for holders of other currencies, reducing both investment and physical demand. As a result, the usual tailwind that geopolitical tensions provide to gold has been largely offset by the dollar’s sharp rebound.

Inflation worries from soaring crude: The sharp spike in crude oil prices and rising geopolitical tensions initially triggered a broad risk-off sentiment, prompting investors to raise cash and trim leveraged positions across asset classes. In such phases, even traditional safe-haven assets like gold can face short-term selling pressure as investors liquidate holdings to meet margin calls or rebalance portfolios, said Ponmudi R, CEO of Enrich Money. This environment strengthens yield-bearing assets and weakens gold’s appeal, even during geopolitical upheavals.

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The US Fed, during its latest policy meeting last week, left its benchmark interest rate unchanged at 3.5% to 3.75%. The US Federal Reserve struck a hawkish tone, suggesting less urgency to cut rates.

Profit taking after stellar 2025: Gold had already seen a powerful run-up even before the West Asia conflict began, surging an extraordinary 70% in 2025 alone. After such a sharp rally, valuations had turned stretched, making investors hesitant to add fresh exposure at elevated levels. As volatility spiked with the escalation in conflict, traders chose to lock in profits rather than chase the rally, triggering a wave of selling instead of the usual safe-haven buying. This kind of reaction is typical after extended upmoves, where preserving gains takes priority over new bets. As a result, profit booking has significantly capped the upside that geopolitical tensions would otherwise have provided.

Gold’s liquidity comes in handy: During periods of sharp market stress, investors often prioritise liquidity above all else. Gold, being one of the most liquid assets globally, frequently becomes a source of cash to cover losses, meet margin calls, or rebalance portfolios. This liquidity-driven selling has been a key factor in the recent correction, overpowering safe-haven demand.

For instance, in Dubai, The Economic Times reported that a stream of customers is walking in every day to sell gold. Some are offering jewellery, some swapping gold bars for cash - quietly accepting discounts the buyers quote. Many among them are men and women of Indian origin. As the Israel-Iran war intensified on its tenth day, many NRIs are paring their gold holdings.

Also read: Gold extends fall after worst week in 43 years. More pain or time to buy the dip?

At least four retailers ET spoke to confirmed that more than 100 such sellers visit daily ever since Dubai was caught in the crossfire. Jewellers say they are buying about a kilogram a day as expatriates liquidate gold to create a cash cushion and remit funds home.

Rising US bond yields: Gold has also come under pressure from rising US Treasury yields, which increase the opportunity cost of holding non-yielding assets like the yellow metal. As bond returns become more attractive, investors tend to shift towards government securities, reducing the appeal of gold in comparison.

These developments have significantly heightened concerns about energy-driven inflation, a major factor dragging gold lower in recent weeks. Markets now expect that sustained high oil prices could force central banks to adopt a more hawkish stance, limiting the appeal of non-yielding assets like gold.

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)