Key takeaways

  • Since the Iran war began, gold has declined sharply to below $4,200 per ounce, despite increased market uncertainty that typically stokes demand for safe-haven assets.
  • Inflation fears and the dollar are decisive headwinds: Both have moved higher, reducing the appeal of nonyielding assets.
  • Experts believe the long-term case remains intact: Central bank demand and geopolitical fragmentation continue to support gold as a strategic allocation.

When missiles began flying over Iran on Feb. 28, markets’ reaction followed a familiar playbook: Oil prices spiked, equities fell, and investors rushed, at least initially, into safe havens. Gold, the oldest refuge of all, surged above $5,400 per ounce within days.

And then, despite the war dragging on with unmitigated fury, the gold price stalled for several weeks, before nosediving to below $4,200 on Monday.

Gold is widely used as a safeguard against inflation, typically maintaining purchasing power over the long run. However, in the short term, its returns can be disappointing, particularly when real interest rates—yields adjusted for inflation—increase.

“Gold is more of a hedge against the wider impact of conflicts, rather than direct wartime threats,” says Mark Haefele, chief investment officer at UBS Global Wealth Management.

He says gold’s latest performance mirrors historical behavior during events like Russia’s invasion of Ukraine in 2022 and previous Middle East conflicts: The price initially jumped then eased with investors then seeking liquidity and alternatives like energy assets.

From geopolitical shock to inflation shock

“What we’re seeing is a textbook example of what I’d call the oil-shock paradox in gold markets,” says Daniel Marburger, CEO at StoneX Bullion. The ‘paradox’ is that energy inflation driven by oil is bolstering the US dollar and interest rates, which are fighting against an inflationary asset such as gold, that should be gaining from it.

“The initial spike was entirely rational, a classic safe-haven reflex to a major geopolitical shock,” he says. The reversal, however, reflects a deeper shift.

“The oil surge is now being read as an inflation threat,” he adds.

This reframing—from geopolitical shock to inflation shock—has been critical. Investors that previously expected multiple rate cuts in 2026 are now pricing in a far more restrictive policy path. That’s why “this changes the Fed calculus,” he says.

Why a strong dollar is bad news for gold

At the same time, the US dollar has strengthened, as oil shocks tend to reinforce the dollar as the global reserve currency in moments of acute stress, which is another headwind for the yellow metal.

“Higher expectations for tighter central-bank policy have driven real yields higher and, given the US dollar’s safe-haven role and the US’s position as a net energy exporter, supported the greenback,” says Matt Bance, solutions strategist and portfolio manager at T. Rowe Price. “Higher real yields and a firmer US dollar are direct headwinds for a nonyielding asset such as gold,” he adds.

At the same time, StoneX’s Marburger says that “acute geopolitical stress initially benefits the world’s primary reserve currency, but in the long run inflation concerns support precious metals.”

Positioning pressures and market mechanics

Short-term market dynamics have also played a role. Gold entered the current crisis after a strong run in 2025: A structural erosion of trust in monetary policy, fiscal discipline and US political stability, as well as central banks’ persistent buying, supported its 65% price rise last year, limiting its ability to attract incremental safe-haven flows now. Instead, investors have used the volatility to reduce exposure and take profits.

“When the dollar strengthens during geopolitical scares, traders get squeezed,” says StoneX’s Marburger. “Gold gets sold not because anyone thinks it’s a bad investment, but because it’s liquid and they need cash fast.”

So, gold is falling not because the geopolitical risk has diminished, but because oil-driven inflation fears are suppressing rate cut expectations, the dollar is stronger, and leveraged positions are being unwound.

What’s next for gold?

Both experts remain constructive on gold’s long-term outlook; however, the path looks bumpier than it was two months ago.

T. Rowe Price’s Bance says gold’s path over the coming months will be shaped by four key, interrelated drivers: real yields, the scale and duration of the energy and geopolitical shock, the strength of the US dollar, and asset flows.

Taken together, says Bance, the most likely near-term outcome is a period of elevated volatility as these narratives compete. “Longer term, structural factors—particularly sustained central-bank demand and heightened policy uncertainty—support the case for gold as a strategic allocation into 2026, rather than a purely tactical trade.”

The gold price is still substantially higher than a year ago, and the fundamental thesis driving it—geopolitical fragmentation, de-dollarization, elevated debt, structural central bank demand—has not changed.

For this year, the major banks remain directionally bullish. UBS holds a $6,200 target by September 2026, Deutsche Bank reiterated $6,000/oz., and Société Générale now expects gold to reach $6,000/oz. by year-end.

StoneX says that the current level looks like fair value for the current uncertainty. It predicts meaningful gains if the conflict worsens or stagflation forces a policy pivot, and some further declines if inflation data pressures the Fed to maintain rates at current levels through mid-year.

What should investors do now?

When it comes to portfolio decisions, the worst thing an investor can do is react emotionally to short-term price action. Both Marburger and Bance emphasize that gold should be viewed as a strategic allocation rather than a tactical trade, supported by structural demand from central banks and its role as a portfolio hedge.

The guidance Daniel Marburger stands behind is a 10%-15% allocation to precious metals within a diversified portfolio, tilted toward the higher end for investors with genuine concerns about systemic risk, dollar debasement, or a hard landing scenario. StoneX’s framework is clear on this: Hedging matters again, and for fiscal and geopolitical stress, energy and gold are the appropriate instruments.

At the same time, Matt Bance suggests maintaining an overweight position in gold while keeping an underweight stance on duration. “Gold can, like bonds, help cushion equity drawdowns during periods of economic weakness and declining real yields, but it has also demonstrated greater resilience than bonds when real yields rise.”