Which asset class tends to rise during heightened geopolitical risks, full-scale wars, and rising inflation? The usual short answer: gold, because investors avoid equities when macroeconomic risks are high and rush to safe-haven assets like gold.
But this is not happening this time. While the raging war in West Asia has raised macroeconomic risks, gold prices have corrected significantly. As per MCX data, domestic spot gold prices have declined more than 6% since the US-Iran war started on February 28.
Why are gold prices falling?
The decline in has occurred due to the jump in the US dollar amid rising prices. Crude is mostly traded in the US dollar, so a rise in the commodity prices drives demand for the dollar, consequently raising its value.
Another factor is the dimming prospects of rate cuts by the US Federal Reserve this year due to the prospects of an inflation flare-up following the jump in crude oil prices.
“One of the fundamental premises on which the strength of gold and silver was based was the likelihood of the US dollar weakening further owing to the cut in US official interest rates. Rate cuts would lead to a decline in the dollar, and that would push up gold prices. But with the outbreak of the war, the potential for inflation emerged again, and the dollar gained some ground against all currency majors. This put limitations on the potential for further gains in gold,” Joseph Thomas, Head of Research, Emkay Wealth Management, observed.
Moreover, gold prices surged in the range of 60-70% globally last year. With the sharp surge in prices seen in almost a year and a half, there was very little room for the price to go up further.
Is gold losing its safe-haven appeal?
The assumption that gold has lost its safe haven appeal is based on the fact that the yellow metal has not seen any appreciation after the West Asian war began.
But this is not the real picture. While the dollar’s strength has weighed on gold prices, the structural story for the metal is intact.
“Gold prices may correct further, but the robust central bank demand which propelled or supported the prices in the last three years will continue to rule,” said Thomas.
Thomas believes that in the evolving geopolitical conditions and the emerging multipolarity in international relations, gold prices may hold well.
Technically, according to Thomas, we are barely halfway through the current bullish phase in gold and silver, and this may extend to another two or three years.
Divya Mandaliya, Commodity Research Analyst at Anand Rathi Share and Stock Brokers, said that the forces shaping gold’s long-term role remain strongly in its favour, even if the near-term path is more volatile and less aligned with the textbook safe-haven behaviour.
“Geopolitical fragmentation, including US–Iran tensions, broader Middle East volatility, US–China rivalry, and regional conflicts, continues to make the ‘risk-on / risk-off’ environment asymmetric. In this uncertain context, gold remains valuable as a trusted, outside-the-system asset, particularly when global trust erodes,” said Mandaliya.
Moreover, the ongoing central bank buying supports structural demand. Trade and tariff uncertainties also add to gold’s risk premium, Mandaliya added.
“Gold has not lost its safe-haven appeal; the recent consolidation reflects the dominance of the dollar-yield narrative after an extraordinary multi-year rally rather than a deterioration in fundamentals. For long-term investors, gold remains a strategic insurance layer within a diversified portfolio, particularly as geopolitical fragmentation, central bank diversification, and latent inflation and fiscal risks continue to underpin its value,” said Mandaliya.
Mandaliya believes that with a disciplined, multi-year investment horizon, gold could revisit $5,500–$6,000 per troy ounce by the end of 2026, with intermittent corrections presenting opportunities for fresh allocations.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.