Gold has suffered a sharp reversal since the US-Israeli war against Iran began on February 28, with bullion prices falling nearly a quarter despite heightened geopolitical uncertainty.
Specifically, spot gold was trading at $5,378 per ounce on March 2, the first trading day after the war began on February 28. By press time, the metal had fallen to around $4,021, representing a decline of about 25.3%.
Prices had dipped below $4,000 early Monday before recovering.
Gold price chart. Source: TradingView
Why gold initially rallied
Gold initially rose on safe-haven demand after the war began, but gains faded as threats to energy supplies and shipping through the Strait of Hormuz fuelled concerns about oil prices, inflation and interest rates.
Higher energy costs could keep inflation elevated and delay rate cuts, making gold less attractive as bond yields rise. A stronger US dollar, profit-taking after the pre-war rally and forced selling in futures markets have added to the pressure.
Overall, the precious metal’s decline highlights how geopolitical uncertainty does not guarantee higher prices.
However, gold’s long-term appeal as a store of value remains intact, supported by central-bank purchases and diversification away from the dollar. Rising real yields and forced selling can nevertheless outweigh these factors during periods of market stress.
Gold ETFs remain resilient
Despite the yellow metal’s decline since the war began, investors have continued buying gold-backed exchange-traded funds ( ETFs ).
Global funds attracted approximately $10 billion in net inflows, equivalent to 67 tonnes, in September even as prices fell 8.5%, according to the World Gold Council.
Gold ETF flows. Source: Bloomberg
The inflows lifted global holdings to a record 4,256 tonnes at the end of September, while the third quarter saw a record $31 billion in net inflows.
The divergence suggests that some investors are using lower prices to accumulate gold or maintain long-term positions amid persistent geopolitical and financial uncertainty, despite continued selling pressure in the broader market.
Meanwhile, gold’s outlook for the rest of 2026 will depend on oil prices, inflation, and Federal Reserve policy.
Lower oil prices and interest rates could support a recovery, while further escalation, persistent inflation, and a stronger dollar could deepen the decline.
Featured image via Shutterstock
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