The ongoing conflict in the Middle East has thrown gold’s safe haven status into question after the asset suffered a sharp selloff.
The price of gold has tumbled by more than 15 per cent since the start of the Iran war, despite holding pre-war levels for the first initial 10 days of the conflict as investors fled stocks and bonds for cash.
But the asset has since become embroiled in the conflict, dropping to $4,550.9 (£3,397) per ounce, as investors cashed in their gains to cover losses elsewhere in the market, bringing the precious metal’s storming rally to an abrupt halt.
Catherine Thom, chief financial officer at Bullion By Post, said: “Normally, the gold price benefits from geopolitical tension, but currently it seems stronger macro forces are offsetting that.
“The escalation involving Iran has pushed oil prices higher, supporting the U.S. dollar and reducing expectations for near-term rate cuts, both of which tend to weigh on gold.
“We’ve also seen gold’s liquidity work against it in the short term, with some investors selling to quickly raise cash and meet margin calls amid wider market volatility.”
Gold has hit multiple record highs since January 2024, when investors rushed to the market following Donald Trump’s inauguration. But after a brief stumble last month, the rally has reversed.
Russ Mould, investment director at AJ Bell, noted that despite its safe haven status, “nothing’s immune to a panic”.
Mould said: “I think that’s the first thing to bear in mind is that if people do reach for liquidity and look and then ultimately turn to cash, they will go for where they can find it and cash where some of the gold was… a logical place to look for.”
The gold price has fallen 16 per cent since the US and Israel began strikes on 28 February, causing investors to scramble to take profits and reduce risk in their portfolios.
Central bank sell off
Speculation has also mounted analysts that central banks may look to sell some of their gold holdings to raise funds, offsetting initial expectations.
The World Gold Council forecast a “continuation of elevated central bank demand” in 2026 in the face of persisting economic and geopolitical uncertainty.
But earlier this month the governor of Poland’s central bank, Adam Glapiński, considered selling or revaluing part of its gold reserves to cover defence spending.
Last year, Poland was the largest buyer of gold, adding a further 102 tonnes to its reserves, increasing its total to 550 tonnes, and in January Glapiński indicated his intention to further hike the amount for “national security reasons”.
Analysts noted that high oil prices, geopolitical risks and the potential revenues offered by high gold prices “may encourage further sector selling”.
The expectations of higher interest rates as central banks look to address the war’s inflationary impact has also depressed the gold price, with the Bank of England hinting that the expected cuts at the start of the year will no longer occur.
Will gold rally again?
Analysts are split on where the gold price goes from here, with some anticipating volatility to remain high and the economic damage set to endure regardless of if Trump’s promises of a ceasefire with Iran and end of the war are true.
But some expect gold to shine once more even as the war rages on, with appetite for safe haven assets sustaining.
Thom said: “There are clear signs of strong dip-buying, which suggests underlying demand remains intact.
“That said, some consolidation isn’t surprising given the strength of the recent rally – gold has moved from around $2,600 in early 2025 to recent highs above $5,000.
“The core drivers, geopolitical risk, inflation pressures and currency uncertainty, remain firmly in place, so this looks more like a short-term correction than a change in the longer-term trend.”
Russ Mould, AJ Bell investment director, also noted that investors must stay focused on long-term wealth and resist reacting quickly to day to day moves.
Speaking in an interview with City AM, Mould said: “Keep informed, absolutely, but don’t try and trade that news because I think in the end you’re going to get yourself into an awful lot of trouble.
“Definitely keep a long-term perspective.”
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