"Buying Gold in Turbulent Times" No Longer Effective? An In-Depth Analysis: Why Gold and Silver Were Ravaged in the Bloodshed of the US-Iran Conflict

Caixin March 20 News (Editor: Bian Chun) As the US-Iran conflict continues, precious metal prices are falling back from historic highs, with gold and silver both experiencing some of the worst single-day declines on record this Thursday.

On Thursday, gold prices declined for the sixth time in the past seven trading days. The spot gold price closed down 3.5% at $4,648.23 per ounce. April US gold futures fell 5.9% to $4,605.70.

Since reaching a record high of $5,626.80 per ounce on January 29, gold futures have dropped about $1,000.

Meanwhile, silver futures fell 8.2% per ounce on Thursday, marking seven consecutive trading days of decline—the longest streak since an eight-day decline in December 2023. Over the past seven trading days, silver has fallen roughly 20%.

Precious metals are typically seen as safe-haven assets, providing security during war, inflation, or market turmoil. So why has gold, in particular, been “bloodied” amid escalating tensions in the Middle East?

Summarizing views from various institutions, we identify several key reasons:

Diminishing Hope for Rate Cuts

One main reason is that gold has become the latest “victim” amid rising inflation expectations and increasingly slim hopes for global rate cuts.

Usually, when interest rates are low and the opportunity cost of holding gold is minimal, gold prices tend to strengthen. Conversely, when rates rise, investors tend to sell gold and favor other assets like bonds that offer stable income.

This week, both the US and European central banks signaled that rate cuts might not come as quickly as investors had expected. The Middle East conflict and resulting energy shocks have cast a shadow over inflation and economic growth prospects.

On Wednesday, the Federal Reserve announced it would keep the federal funds rate target range unchanged at 3.5%–3.75%, marking the second consecutive pause. Fed Chair Jerome Powell stated in a subsequent press conference that US inflation outlooks are uncertain, with Middle East tensions and tariff disruptions disrupting the inflation slowdown, and internal Fed discussions leaning toward fewer rate cuts.

Data released Thursday showed that US initial jobless claims unexpectedly fell to 205,000 last week, a new low for the year and below market expectations. After this data, traders no longer bet on rate cuts by the Fed in 2026.

Aakash Doshi, Head of Global Gold and Metals Strategy at State Street Investment Management, said: “Before the conflict, money markets expected the Fed to cut rates twice. Now, the market’s expectation is that there will be no easing this year.”

Adrian Ash, researcher at online trading platform BullionVault, noted that rate decisions could negatively impact gold. In an interview, he said: “The Fed’s rate cut plans have been pushed further into the future. Mechanically, this is bearish for gold.”

Traders have seen similar situations before, such as during the Russia-Ukraine conflict in 2022, which caused energy prices to surge and fueled inflation. From April to October of that year, gold prices declined for seven consecutive months.

Dollar Strengthening

Another factor pressuring gold is the US dollar’s role as a primary safe-haven asset during conflicts. The dollar index has risen about 1.8% this month. Since gold is priced in dollars, this increases the cost for holders of other currencies to buy gold.

Yardeni Research noted in an email to clients on Thursday that in the current turbulent market environment, gold has not served as a safe haven.

The firm wrote: “Geopolitical risks are high, inflation is rising, the US federal budget deficit is widening, yet gold prices are falling sharply today.”

What’s behind this? According to Yardeni, the “quick, always reliable answer” is profit-taking after gold’s rally.

“Although both gold and the dollar are seen as safe assets, investors in the Middle East may be selling gold to buy the strengthening dollar during the conflict,” Yardeni said.

The firm added that another reason could be investors rushing to recover recent losses in Korean and Japanese markets. An additional factor is rising bond yields, which typically move inversely to gold prices.

Retail Investor Sentiment Cooling

Over the past year, retail investors poured significant funds into gold ETFs, but now their enthusiasm appears to be waning.

According to VandaTrack data, Thursday marked the sixth consecutive day retail investors sold the largest gold ETF, SPDR Gold Shares. Based on trading data through Thursday’s midday, they have net sold about $10.5 million worth of SPDR Gold ETF during this period.

Compared to last year’s single-day high of $36.8 million in purchases, this figure is relatively small. However, analysts see this as a sign that retail interest in gold is weakening.

“Smart money” also selling

Professional investors are reducing their gold positions. During market turbulence, some trend-following hedge funds—such as commodity trading advisors (CTAs) that use algorithms to identify asset patterns—have been trimming their gold holdings.

Tom Wrobel, Capital Advisory Director at Société Générale’s commodities brokerage, said: “Over the past six months to a year, CTAs have been in a clear long-uptrend in gold.” He added that they “may still be relatively bullish on gold but are managing risk and significantly reducing their positions.”

Suki Cooper, Head of Commodities Research at Standard Chartered, said that after a sharp rise in gold and silver prices over the past two years, some investors might be cashing out to realize profits or cover losses elsewhere, such as margin calls from stock declines. Others may be seeking to convert gains into cash amid a strengthening dollar or shifting into emerging attractive investments like energy stocks.

“Liquidity needs in other sectors continue to outweigh the geopolitical risk premium in gold,” he said.

Other Metals Also Declining

Not only gold and silver are under pressure. Smaller metals like platinum and palladium have fallen 17% and 15%, respectively, this month. Industrial metals copper and aluminum have also declined, indicating that investors are recalibrating expectations for global economic growth.

After the conflict erupted at the end of last month and the Strait of Hormuz was effectively blocked, aluminum prices surged toward historic highs. Qatar transports aluminum and liquefied natural gas through the strait, with LNG being a key fuel for regional production. But this week, London aluminum futures fell 5.7%.

Edward Meir, analyst at Marex, said: “Investors may be concluding that a slowdown in the global economy could lead to demand destruction to some extent.”

(Caixin, Bian Chun)