Gold Falls Amid Middle East Conflict

Why gold dropped from 5.400 to 4.300 per ounce in just three weeks. Causes and Outlooks

Read the analysis report on GitHub

Since early March 2026, when a military conflict escalated in the Middle East, gold has fallen by about 20% (and at one point — by as much as 25%).

Gold is traditionally considered a safe-haven asset — a hedge against crises. In the 1970s, it surged during the oil embargo and spike in energy prices. Today’s situation looks similar: the Strait of Hormuz is blocked, and oil prices have jumped above $110 per barrel.
So why is gold falling instead of rising?
Let’s explore the factors weighing on gold prices and what the future holds for them.

The daily chart shows that as of late March 2026, gold is still within a long-term bullish trend — meaning the asset is in a growth phase. The current drop is more of a correction. Prices have broken below the 50-day and 100-day EMAs and are approaching the 200-day EMA — a significant trend level. According to the RSI indicator, the asset is in the oversold zone.

Why Geopolitics Stopped Driving Metal Prices Up
In late February 2026, the US and Israel struck Iranian military and nuclear facilities. In response, Tehran blocked the Strait of Hormuz — a narrow maritime corridor through which about 20% of global oil and gas supplies pass daily. Oil instantly soared above $110 per barrel, and the world began talking about a new energy crisis.
Historically, such events pushed gold higher. This was the case in 1973 during the oil embargo, in 1990 during the invasion of Kuwait, and in 2003 before the Iraq war. Geopolitical fear automatically spurred demand for the metal. But in 2026, this mechanism failed.
1. “Hawkish” Fed Policy
At the end of 2025, analysts expected the Fed to continue its rate-cutting course. However, in January and March, the regulator’s rhetoric was quite tough: uncertainty is growing, and long-term inflation forecasts have moved up — especially against the backdrop of the spike in hydrocarbon prices. Therefore, the Fed continues to hold the rate at a high level — 3.5–3.75%. Now, markets expect only a minimal rate cut of a quarter point for the rest of 2026.

The Fed aims to reduce the key rate to 2%, but the process has dragged on. While inflationary pressure persists, the rate is kept high.

When the real yield on two-year bonds goes negative, investors essentially incur losses and move to alternative instruments like gold. Conversely, when the yield relative to inflation is decent, investors prefer to stay in bonds.

2. The Strengthened Dollar
In unstable times, global capital traditionally flows into the dollar. The conflict in the Middle East strengthened the dollar, which in turn pressed down on gold. While both are safe havens, the dollar wins currently because it generates yield through government bonds.

Correlation of gold price with the dollar over a five-year period — showing the inverse relationship.

3. Large Players Closing Losses (Margin Calls)
To find liquidity quickly during market panics, investors sell gold — not because it’s a bad asset, but because it’s the most liquid way to get cash for margin requirements.
Why Gold Remains Interesting in the Long Term
Future dynamics depend heavily on geopolitics and the Fed. Current forecasts from major banks remain bullish: J.P. Morgan experts 6,300 perounceand ** Deutche Bank ** expects 6,000 by the end of 2026.

In the mid-1970s, inflation soared, and the price of gold rose by 550%: from 100 perouncein 1976 to 650 by 1980.

Why Geopolitics Failed to Push Gold Higher
In late February 2026, the US and Israel struck Iranian military and nuclear facilities. In response, Tehran blocked the Strait of Hormuz — a critical corridor through which about 20% of global oil and gas flows. Oil prices surged above $110, raising fears of a global energy crisis.
Historically, such events pushed gold higher:
1973 oil embargo
1990 Gulf War
2003 Iraq War
But in 2026, the pattern broke. Here’s why.
🏦 Hawkish Fed Policy
Contrary to expectations, the Federal Reserve did not pivot to rate cuts. Instead, it maintained a high interest rate of 3.5–3.75% due to persistent inflation risks.
The math is simple:
Inflation: ~2.5–3%
Interest rate: ~3.5–3.75%
→ Real yields remain positive
This makes government bonds attractive — investors earn real returns. Gold, by contrast, does not generate yield, so capital flows into bonds instead.
💵 Strong Dollar Effect
Gold is priced in US dollars. When the dollar strengthens, gold becomes more expensive for foreign buyers, weakening global demand and causing prices to fall. During crises, capital flows into the dollar as the most liquid and reliable currency. This creates a paradox: both gold and the dollar are safe havens — but the dollar wins because it also generates yield.
What Happens Next?
Several scenarios are possible:
Continued Pressure (Base Case)
High real rates persist.
Dollar remains strong.
👉 Gold stays under pressure or moves sideways.
Fed Pivot (Bullish for Gold)
Markets begin pricing in rate cuts.
Dollar weakens.
👉 Gold rebounds.
Escalation Shock (Short-term Spike)
Conflict intensifies dramatically.
👉 Temporary surge in gold demand.
Bottom Line
This time, geopolitics alone wasn’t enough to drive gold higher. Real yields and monetary policy are dominating the narrative. Gold isn’t broken — it’s just competing with assets that now offer something it doesn’t: income. If that changes, gold could quickly return to its role as the ultimate safe haven.
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