After the US-Israeli military action against Iran on Feb. 28, gold’s trading logic shifted sharply. The metal, long seen as a safe-haven asset, did not keep climbing; instead, after a brief initial rally, it reversed quickly. Spot gold was quoted at $5,378 per ounce on Mar. 2, then weakened over the following days. By publication, it had fallen to about $4,021, a cumulative drawdown of roughly 25.3%. In early Monday trading, prices briefly slipped below $4,000 before a technical rebound.
This move ran counter to investors’ initial safe-haven expectations. At the outbreak of the conflict, risk-averse buying did lift gold, but market attention quickly turned to energy route risks. Concerns over shipping and crude supply through the Strait of Hormoz stoked expectations for higher oil prices, raising the prospect of renewed inflation and sustained elevated rates. As bond yields climbed, gold’s relative appeal as a non-yielding asset declined, and a stronger dollar added further pressure on the dollar-denominated metal. Profit-taking after earlier gains and passive selling in futures from margin and position adjustments amplified the decline.
Notably, spot gold prices and ETF fund flows diverged. Industry data showed global gold ETFs received about $10 billion in net inflows in September, equivalent to adding roughly 67 tonnes of gold, even as prices fell 8.5% over the same period. By the end of September, global gold ETF holdings rose to 4,256 tonnes, a record high; third-quarter net inflows reached $31 billion, also a record. Investors did not pull out on lower prices but continued to buy at lower levels, suggesting that some institutional and individual investors still regard gold as a long-term portfolio hedge.
Going forward, whether gold can recover will hinge on the interplay among oil prices, inflation and monetary policy. If energy prices ease, inflation pressure moderates and markets again price in rate cuts, gold may find valuation support. If the conflict expands, inflation becomes stickier and the dollar remains strong, gold could continue to face selling pressure. For now, oil prices, inflation and Fed policy remain the variables traders are weighing.
