Amid the Middle East war, bullion pullback is typical – it does this when uncertainty tips into a full-blown crisis as the US army looks ready to attack Iran, while the conflict between them has reached its 149th day on Sunday.
And, today, a sudden twist is there as the Iran war spread towards the Red Sea and Caspian Sea over the weekend, despite the United States pausing its airstrikes after 13 consecutive nights of attacks, Reuters reported.
The U.S. military said its naval blockade of Iran remained fully operational but did not explain the pause in airstrikes. A senior Trump administration official said diplomacy remained the president’s preference, though Iran had been shown the consequences of refusing serious negotiations.
Iran also refrained from attacking neighbouring countries on Saturday, creating a temporary lull in Gulf fighting.
Separately, U.S. Ambassador to the United Nations Mike Waltz said that U.S. President Donald Trump has paused military attacks on Iran to create space for diplomatic efforts.
On Sunday, the Pentagon halted bombing operations following 13 consecutive nights of increasing strikes. No attacks by Iran on neighbouring countries were reported over the weekend.
I anticipate that if this is really a pause, it will shift the whole scenario – developed between February 28 and July 27, 2026 – while the global economy has passed through the denting impact of war escalation between the US and Iran in the last 149 days.
On Monday, markets may react to this sudden shift, as choking of maritime traffic and energy supplies through the Strait of Hormuz and the Red Sea/Bab el-Mandab creates a dangerous double chokepoint that puts additional pressure on global supply chains.
In the traditional investment playbook, is the asset of choice when uncertainty peaks.
But with the deepening of the Iran war, the yellow metal has come under pressure, prompting investors to sell it to raise cash.
Between the Feb 28 outbreak of the war and 6 pm on Thursday (Mar 26), gold shed 14.6 per cent. The metal has, however, steadied after a nine-day losing streak, when investors were weighing incongruent statements from the United States and Iran on talks to end the war.
I find that bullion’s retreat amid the war in the Middle East is actually consistent with historical patterns: Gold has tended to falter once uncertainty tips into a full-blown crisis.
Undoubtedly, there is a big difference between a period of uncertainty and actual crisis, as Gold historically does not perform well in periods of crisis.
I observed that the yellow metal was also “sold off heavily, along with everything else”, during the 2008 global financial crisis and the 2020 Covid-19 pandemic as investors scrambled for liquidity. When an actual crisis hits, it tends to be just another thing that people can use to get liquidity.
Meanwhile, and prices have surged amid infrastructure damage and supply-chain disruptions in the Middle East, triggering a shift in capital towards energy markets.
I feel that gold’s pre-conflict rally left it “vulnerable to profit-taking and technical selling”, even as some investors sold it to raise liquidity amid broader market volatility.
The shift in the risk landscape has also triggered a tactical rotation among institutional investors seeking to capitalise on the volatility in energy markets.
Meanwhile, gold is also facing macro headwinds, as energy-driven inflation amid the Iran conflict has clouded investor expectations of near-term rate cuts by the US Federal Reserve.
I find that interest rate expectations are showing greater influence over gold prices than anticipated, as higher inflation risks further supporting real yields, which are a “key headwind” for a non-yielding asset like gold.
In the current environment, ongoing geopolitical stress combined with rising energy prices tends to channel capital into dollar-denominated assets, which partly dilutes gold’s traditional safe-haven role.
Normally, heightened geopolitical risk and tensions usually bode well for gold, but this time around is different, as gold’s negative correlation with the US dollar has strengthened in recent years.
Central banks have led gold buying over the past four years; as the metal’s current price is more conducive for central bank purchases, these banks might prioritise defending their currency, fiscal concerns and balance-of-payments concerns, particularly in oil-importing economies.
I don’t expect a sharp acceleration in Asian central-bank gold buying purely because of the price the recent pullback is unlikely to slow ongoing accumulation, as central banks typically purchase gold strategically over time.
I find that the key drivers for Asia’s central-bank buying include reserve diversification and comparatively lower gold allocations relative to foreign exchange reserves than Western central banks.
Gold’s recent softening amid the Middle East escalation of tension reveals a phase of forced liquidations among investors. While gold has historically demonstrated resilience and tends to be among the first few asset classes to recover following periods of market stress, it is not entirely immune to short-term volatility.
Undoubtedly, if constraints around oil supplies persist and lead to inflationary pressures, this could result in downward pressure on gold prices. However, further geopolitical escalations could drive safe-haven demand in support of gold.
Beyond the immediate conflict, the trajectory of US interest rates, dollar strength and central bank buying activity will remain key drivers of gold in the near to medium term.
Disclaimer: Readers are advised to take any position in gold at their own risk, as this analysis is based solely on observations.
