Why gold remains untouched by escalating conflict despite volatile markets

Energy and stock markets around the world have experienced sharp volatility as hostilities in and around Iran continue to intensify. While geopolitical crises typically drive investors toward traditional safe-haven assets, gold’s performance during the current conflict has been unusually muted.

Following airstrikes launched by the United States and Israel against Iran on February 28, gold initially climbed from $5,296 to $5,423 per troy ounce, reflecting the long-standing view that geopolitical turmoil pushes investors toward safe stores of value. However, the rally quickly reversed. A sell-off drove prices down more than 6% to $5,085 by March 3.

Since then, gold prices have traded within a relatively narrow band despite the escalation of the conflict. Over the past week, the precious metal has fluctuated between roughly $5,050 and $5,200 per troy ounce. Spot gold was last seen trading near $5,175.

The subdued performance has puzzled market observers because gold has historically acted as one of the most dependable safe-haven assets during times of geopolitical uncertainty. Instead of surging as some investors expected, the metal has declined by about $200 since the first airstrikes on February 28 — a development that contradicts the conventional market playbook.

One explanation lies in the immediate reaction of currency markets, as detailed by commodity platform Kitco News. In the aftermath of the strikes, the US dollar surged as investors rushed toward what they perceived as the safest and most liquid global asset. This influx of capital into the dollar effectively crowded out gold’s usual role as the primary refuge during geopolitical crises.

A stronger dollar tends to put downward pressure on commodities priced in the currency because it makes them more expensive for international buyers. As a result, gold — which is denominated globally in dollars — became less attractive to foreign investors despite the escalating tensions.

More recently, analysts say market attention has shifted toward the potential economic consequences of a prolonged conflict, particularly its impact on global energy supplies and monetary policy. Traders are increasingly focusing on how disruptions to oil flows could influence decisions by the Federal Reserve regarding interest rates.

Higher interest rates generally increase the appeal of yield-generating assets such as government bonds compared with non-yielding assets like gold.

Analysts also point to several other factors behind the metal’s limited upward momentum, including elevated US Treasury yields.

Another explanation is that geopolitical shocks can trigger panic selling in financial markets. In such cases, investors may be forced to liquidate positions to cover losses elsewhere, creating a wave of selling pressure. This type of market “flush” can drive prices lower even for assets that are typically viewed as safe havens during periods of crisis.

By Nazrin Sadigova