Why Did Gold Prices Fall After the US-Iran Conflict?

Gold prices have remained weak following the US and Israeli attacks on Iran. Previously, gold, considered a “safe-haven asset,” was bought in response to rising geopolitical risks.

Analysts believe that in addition to headwinds from a stronger dollar and rising interest rates, the rapid increase in financial market volatility, with investors selling gold to cover losses, is another reason for the price weakness.

The New York futures market (the most active contract), a key international gold price indicator, was around $5,170 per ounce on March 11, down more than 1% from before the US-Iran conflict. Although prices rose on March 2 after the conflict began, they plummeted on March 3 and have not recovered to pre-conflict levels. Gold’s performance mirrors that of the Dow Jones Industrial Average, failing to become a safe haven for funds during emergencies.

In February 2022, when Russia attacked Ukraine, gold rose 4% by the eighth trading day after the attack began.

The strengthening dollar and rising US Treasury yields following the US-Iran conflict have created headwinds for gold prices. Gold is priced and traded in US dollars. For overseas investors, a stronger dollar and a weaker local currency can diminish investment returns when converting exchange rates. Gold does not generate interest, so bonds tend to be more attractive than gold when bond yields rise.

Some also point out that the sharp increase in financial market volatility is one of the reasons for the weak gold price. Shawn Tuteja, who is in charge of volatility trading at Goldman Sachs, analyzed that “institutional investors are forced to sell profitable assets such as gold in order to control the overall price movement of their portfolios.”

Following the US-Iran conflict, stock and bond prices plummeted. To recoup losses, gold and South Korean stocks, which had seen significant gains before the conflict, were sold off, while short covering in software stocks also accelerated.

Ross Norman, CEO of the UK metals information website MetalsDaily, pointed out that “the sharp drop in silver prices exacerbated the decline in gold prices.” Silver fell by more than 10% after the US-Iran conflict. The prices of gold and silver, both precious metals, are inherently correlated.

The volatility index for precious metals (based on option prices and showing the expected price fluctuation range over the next 30 days on an annualized basis) is very high. The Chicago Board Options Exchange (CBOE) revealed that silver’s volatility index has hovered above 70 since mid-January, and is expected to remain around 25 until September 2025. Gold’s volatility index has also reached over 30, exceeding the Nasdaq 100’s volatility index (over 24), which is primarily driven by high-tech stocks.

The unpredictable nature of US government policy towards Iran makes it difficult for investors to understand the situation. Investors’ reactions to factors outside of gold, and the resulting instability leading to a sharp drop in gold prices, are also worrying.