Gold’s reputation over the past year as the go-to refuge in a crisis is taking a battering as war rages and threatens to expand in the Middle East and financial markets buckle.
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Spot gold plunged to a 2026 low near $4,100 in early trading on Monday before recovering sharply to above $4,400 after US President Donald Trump announced he was postponing military strikes against Iranian power plants for five days following “very good and productive conversations” with Tehran — a swing of around $300 in the space of hours.
The metal has still shed more than 20% since hitting a record high of $5,594.82 an ounce on 29 January.
Silver has lost nearly half its value since hitting an all-time high of $121.67 in January, in one of the more violent collapses in the precious metal’s modern history.
Spot silver was down 8.9% at $61.76 — a year-to-date low and almost half of its $117 level on 28 February, when the Iran war began.
The counterintuitive sell-off has rattled investors who piled into precious metals expecting them to hold firm.
The dollar dropped against the euro after Trump’s comments and traded around $1.1572 to the euro on Monday afternoon, while the pound was up at a rate of $1.3341. The yen traded at around ¥159.47 per dollar.
Oil shocks continue to reverberate
The main culprit is the oil shock. As crude surges past $100 a barrel, bond yields are climbing and the US dollar is strengthening, making precious metals far less attractive to investors bracing for higher interest rates.
The dollar has emerged as one of the clearest safe-haven winners, strengthening over 2% so far this month.
For a non-yielding asset like gold, that is a double blow.
The prospect of higher interest rates as a result of the war is also boosting government bonds among investors, at the expense of precious metals.
Yet seasoned observers urge caution before declaring the gold story over.
Russ Mould, investment director at AJ Bell, points out that gold is in the middle of only its third major bull run since 1971 and that the previous two also caused stomach-churning fluctuations.
“Neither interest rates staying higher for longer nor a stronger dollar may help the investment case for precious metals, but both the 1971-1980 and 2001-2010 bull runs saw several retreats which did not ultimately nullify or prevent major gains,” Mould said.
“So it may be too early to give up on gold just yet,” he continued.
During the first bull run, triggered by Richard Nixon’s decision to decouple the dollar from the gold standard in 1971, gold surged from $35 to a peak of $835 an ounce by January 1980, but not before enduring three mini bear markets and five corrections of 10% or more along the way.
The second run, which began in 2001 amid the wreckage of the dotcom bust and gathered pace through the 2008 financial crisis, was equally volatile, featuring two bear markets and another five double-digit corrections before gold peaked near $1,900 in 2011.
This third advance has been no smoother.
“A swoon of more than 20% caught some bulls off guard in 2022, as the world emerged from lockdowns, and 10%-plus corrections in each of 2016, 2018, 2020, 2021 and 2023 [gold peaks] warned that volatility was never far away,” Mould noted.
The question of dividends
The paradox at the heart of the current sell-off is that the very crisis that might once have sent investors flooding into gold is now working against it.
Rising oil prices fuel inflation fears, inflation fears fuel expectations of higher interest rates and higher rates make gold — which pays no dividend and costs money to hold — less appealing.
“Gold’s status as a haven may now be tarnished in the eyes of some,” Mould said, “as the precious metal is falling in price even as war roils the Middle East and financial markets alike.”
But not everyone is convinced the metal’s moment has passed.
The inflation and stagflation of the 1970s, partly triggered by the oil shocks of 1973 and 1979, ultimately made gold the standout portfolio pick of that decade.
A prolonged conflict that stretches government finances — pushing welfare costs up and tax revenues down, on top of surging defence spending — could yet revive that dynamic.
If central banks respond to recession with fresh rate cuts and quantitative easing, the case for gold as a store of value comes roaring back.
“The war in Iran and its effect on oil and gas prices is stoking fears of inflation and how that could force central banks to raise interest rates,” he concluded.