Khaberni - It seems that the decline of gold at the height of the American-Israeli war on Iran is not just a fleeting market anomaly, but rather reflects a change in the shock transmission mechanisms within global markets. Under normal circumstances, an increase in geopolitical tensions is expected to lead to higher demand for the yellow metal as a safe haven.
But what happened this time is that the war pushed oil and gas prices up, thus raising inflation expectations, decreasing bets on a cut in U.S. interest rates, and sending bond yields and the dollar higher, all of which exerted pressure on gold in the short term despite the intensely volatile geopolitical background.
The Federal Reserve kept the interest rate between 3.50% and 3.75% on March 18, 2026, while its forecast materials indicated that inflation remains above target, with the uncertainty related to Middle East developments remaining high.
At the same time, the yield on 10-year U.S. Treasury notes climbed from about 4.05% on March 2, 2026, to 4.39% on March 20, which increased the cost of holding a non-yielding asset like gold.
War Shock
The war was not merely interpreted in the markets as a shock of fear that automatically drives investment towards gold, but also as an inflationary shock that reshapes monetary policy expectations. With disrupted supplies and rising energy prices, the markets began to reprice the expected path for U.S. interest rates, on the basis that inflationary pressures might become more entrenched than previously expected.
In this context, the preliminary reading of the U.S. Purchasing Managers' Index in March 2026 indicated that input costs saw the fastest rise in ten months, while selling prices increased at the strongest rate in more than three and a half years, signaling that the surge in energy costs and tightening supply conditions are gradually transitioning from production side to final prices.
From this perspective, gold's movement is no longer a direct reflection of escalating military tensions alone, but is hostage to indirect effects generated by the war, notably higher bond yields and the strength of the dollar. The pricing of inflation risks has enhanced the attractiveness of yield-bearing assets, compared to gold as a non-yielding asset.
The figures clearly reflect this shift, as the yellow metal has lost more than 21% from its all-time high recorded on January 29, 2026, at $5594.82 per ounce, and has declined by approximately 17% since the onset of the war on February 28.
Despite rebounding to around $4491 an ounce on March 27, driven by buying at dips, it still moves below its record levels, indicating ongoing pressures related to the interest rate path and the strength of the U.S. currency.
Has Gold's Safe Haven Role Diminished?
Current data does not support the conclusion that gold's role as a safe haven has eroded, but rather indicates a temporary shift in the balance of power between assets. The price decline does not reflect a loss of its hedging characteristics so much as a portion of liquidity shifting towards the dollar and higher-yielding instruments, especially short-term bonds.
Gold typically benefits when geopolitical risks are coupled with falling yields or expectations of monetary easing. However, the current situation is different, as the war led to an oil shock that raised inflation and repriced the interest rate path towards tightening, thereby temporarily reducing gold's attractiveness and making its reaction to the crisis more complex compared to traditional patterns.
This comes after total global demand for gold according to the World Gold Council data exceeded 5000 tons for the first time in 2025, driven by strong investment inflows, while the average central bank purchases were about 27 tons per month in the same year. The People's Bank of China continued to increase its reserves in January 2026 for the fifteenth consecutive month.
These indicators reflect that the structural foundation of demand remains robust, and the sharp price decline is linked to short-term financial and monetary factors, rather than a radical shift in long-term demand behavior.
In this context, economics expert Mazen Ershid stated that what occurred is related to what he described as a "liquidity crisis," as the oil jump above $100 per barrel led institutional investors to liquidate profitable assets, primarily gold, to cover losses or provide the necessary dollars for energy trading.
Ershid adds, in his talk to Al Jazeera Net, that the decline witnessed by gold does not reflect a collapse in its status, but rather a rearrangement of liquidity priorities under market pressure.
He points out that gold remaining above the support levels between $4100 and $4200 keeps the possibility of a continuing upward trend in the long term, especially with ongoing central bank purchases, noting that some investment houses still target levels between $6100 and $6300 by the end of 2026, although the path towards them has become more rugged due to higher yields and the strength of the dollar.
Profit-Taking and New Positioning
Economic analyst Ahmad Aql believes that the strength of the dollar was a main factor in the sharp decline of gold, and that the fixing of U.S. interest rates and reduced expectations for cuts have bolstered the attractiveness of the greenback and interest-bearing deposits and instruments.
Aql points out, in his talk to Al Jazeera Net, that liqui...
