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A strengthening dollar, rising interest rates and liquidity pressure are pushing gold lower, despite a global climate of uncertainty.
The price of gold has fallen sharply during the conflict with Iran, defying the traditional expectation that gold rises in times of crisis. Since February 28, the day the conflict began, gold has lost about 20% of its value. This development seems unusual only if gold is viewed simply as an indicator of fear in the markets.
"Safe" capital is moving towards the dollar
In modern financial markets, investors do not automatically turn to gold during crises. They often prefer the US dollar, due to its high liquidity and its role in global trade. Since gold is traded in dollars, the strengthening of the US currency makes it more expensive for international buyers, reducing demand. In this context, the fear in the market has not disappeared, but is reflected in a stronger dollar and rising bond yields.
Rising oil prices affect interest rate expectations
The conflict has pushed up oil prices and revived concerns about prolonged inflation, prompting central banks to hold interest rates higher for longer.
Gold, which does not generate income, becomes less attractive compared to instruments that offer returns, such as bonds. In practice, the price of gold is affected more by real interest rates than by inflation itself.
Liquidity pressure is forcing sales
In times of volatility, investors sell more liquid assets to secure cash. Gold, as an easily tradable asset, is often involved in this process. This situation, known as a “liquidity flush,” has contributed to the price decline, as investors have sought to cover losses in other segments of their portfolios.
ETF exits and profit-taking deepen decline
Another factor is the overweight position in gold. Before the conflict, gold had experienced a strong rise, attracting many investors.
According to market data, exchange-traded funds (ETFs) have seen significant capital outflows. This suggests that investors are taking profits, rather than increasing exposure.
In modern markets, where "paper gold" dominates through contracts and ETFs, selling can be accelerated by algorithms and risk management rules, deepening fluctuations.
Gold's decline during the conflict with Iran does not necessarily signal a lack of global uncertainty. Rather, it reflects a combination of financial factors: a strengthening dollar, rising interest rates, and the need for liquidity.
This development shows that in contemporary markets, gold is not always the first refuge in times of crisis, but an asset that is affected by more complex macroeconomic dynamics. /Adapted from Newsweek /
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