As the U.S.-Iran conflict and de facto closure of the Strait of Hormuz enters its fourth week, market participants continue to search for some blue sky through the fog while remaining sensitive (in both directions) to fluid headlines flowing out of Washington and the Persian Gulf.
While likely not comfortable for most investors, capital markets have generally reacted as one would expect given the major factors of the event — global equities faced downward pressure as oil prices surged and sovereign bond yields have moved higher as a result of energy-driven inflation worries. Yet an unlikely surprise has been gold.
is widely regarded as a favorite among safe haven and inflation hedges, but after ending February just shy of $5,200/ounce, bullion prices are down 21% over the course of the conflict and are nearly 27% off late January’s all-time highs — even posting its worst week since 1983 last week. Outside of the initial spike at the onset of the conflict, this move has been somewhat counterintuitive given gold’s long-term historical patterns. But when checking a layer or two below the tape, the calculus adds up.
Not Solely Trading on Geopolitical Headlines
While the metal does have some well-known historical tendencies, at times, it can break free of these longstanding patterns and trade to its own tune, reflective not in surface-level drivers but the deeper plumbing of the market. The effective closure of the Strait of Hormuz, combined with surging prices and rising fears, lifted U.S. Treasury yields, pushed out expectations for , and strengthened the , a move amplified by last week’s hawkish‑leaning .
The collision of these dynamics makes for a notable headwind in gold’s relative attractiveness, which experiences a rising opportunity cost when expectations of higher-for-longer rates increase (gold doesn’t pay interest). Simultaneously, dented risk appetite stemming from the inflation and economic growth angst pushed traders to cover their losses in other areas of the market, meet margin calls, triggered stop-loss levels, and sparked a broad dash for cash via locking in gains from profitable positions in technically overbought gold after a record setting 2025 and start to 2026 (as shown below in the middle panel).
Gold Prices Slump Amid Middle East Conflict
Source: LPL Research, Bloomberg 03/24/26
Disclosures: Past performance is no guarantee of future results.
Perhaps the most noteworthy of the under-the-surface drivers, in our view, is the decoupling of bullion’s correlation with real yields. After a few-year stretch in which gold and Treasury yields traded in an unusual tandem, gold appears to be reverting back to its theoretically and historically correct negative correlation with real yields (when real yields are negative or trending lower, gold shines for better capital preservation relative to bonds, and vice versa).
Looking Ahead
Zooming out from this month’s pullback, we believe the outlook for the yellow metal remains constructive. Despite some calls across Wall Street that bullion may be losing its store of value appeal, we believe this is unlikely. Previous market shocks in 2008, 2020, and 2022 saw gold initially fall. This time, the move was exacerbated by a run-up in volatility since mid-January (as shown above in the bottom panel), undermining gold’s store of value characteristics in the short-term amid herding and momentum dynamics, retail buying, and investors seeking an everything hedge, which led to nervous trading and sharply overbought conditions. Plus, emerging market (EM) central banks were forced to defend their currency against the U.S. dollar’s rally, a factor which may persist in the short term.
But after a healthy repricing, fundamental factors remain in place. Gold continues to garner support from central bank buying, after becoming the second-largest foreign reserve asset, with the vast majority of global central bankers expecting gold reserves to moderately increase over the next five years driven by demand for diversification. Further, physical buying across Asia and EM and ballooning global deficits support gold. On a technical note, ETF flows now point to a net outflow this year and, as shown above, positioning has swiftly reached oversold levels as measured by the 14-day relative strength index (RSI) which could draw in contrarian buyers. Further, while immediate-term headwinds may linger alongside geopolitical uncertainty, the yellow metal has held its 200-day moving average (dma) to start the week, thus far passing a big technical test for its long-term trend. If this level holds, it would suggest downside risks may be limited from here and that gold may move onto more even footing, but the dollar remains a wildcard, which could pressure the yellow metal if recent strength continues.
