Analysis: Why Gold Prices Fell Amid Iran War Escalation

Investing.com - Since the outbreak of the Iran war in late February, gold prices have remained under pressure. The armed conflict has now entered its third week, and after the U.S. and Israel attacked a key Iranian export terminal over the weekend, global markets were shaken, and Tehran issued threats of retaliation.

During the escalation of the conflict, oil prices surged above $100 per barrel, raising concerns that the conflict could intensify global inflation pressures. However, since the start of the conflict, XAU/USD has fallen about 5% — an unusual trend for an asset traditionally seen as a hedge against geopolitical uncertainty.

Gold typically benefits during periods of geopolitical tension, as investors turn to gold to hedge against market volatility and economic turmoil. So why are gold prices falling?

According to Lawson Winder, an analyst at U.S. Bank, investors are selling this traditional safe-haven asset to raise liquidity amid a sharp sell-off in global stock markets.

“Since the start of the Iran war, gold has been under pressure because investors are using this safe-haven asset to generate liquidity during the significant sell-off in global equities, preventing gold from benefiting from broader geopolitical turmoil,” Winder said.

As a result, rising U.S. Treasury yields and a strengthening dollar are putting pressure on gold prices. Last week, gold prices fell nearly 3%, and gold mining stocks also came under pressure. The iShares S&P/TSX Global Gold Index ETF (TSX:XGD) declined 6.3%, Philadelphia Gold/Silver dropped 7.1%, and the Market Access NYSE Arca Gold BUGS Index UCITS ETF (SIX:MAGB) fell 7.3%.

Despite this recent pullback, bulls see the recent sell-off as an attractive buying opportunity, citing structural positive factors such as ongoing central bank demand.

“Currently, demand for gold appears largely rational, driven by geopolitical uncertainty, inflation concerns, and central bank reserve diversification,” said Colin Bosher, co-founder and Chief Strategy Officer of Nuway Capital, in an interview with Investing.com.

“The structural inflation drivers remain firmly in place — costs of energy transition, supply chain reshoring, defense spending, and demographic pressures. All these factors reinforce gold’s role as a long-term store of value,” he added.

Although there has been a recent correction, gold has still risen significantly this year, with an approximate 16% increase so far in 2026.

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