The decline in gold prices is not only related to the geopolitical crisis, but to a broader combination of economic factors: high inflation, expectations of higher interest rates and a strengthening US dollar. Together, these factors are keeping gold under pressure, despite its traditional role as a “safe haven” in times of uncertainty.
In theory, gold is considered one of the safest assets in times of global crisis. When wars break out, inflation rises or economic uncertainty increases, investors usually move away from volatile stocks and currencies and head for gold, driving up its price. But this time the situation is developing differently. Despite a long war between the United States, Israel and Iran, the price of gold has fallen sharply. From a peak of around $5,303 per ounce in late January, it has recently fallen to around $4,235.
The main reason is not a lack of uncertainty, but the way major economies, especially the United States, are reacting. The conflict in the Strait of Hormuz has raised oil and gas prices, triggering a wave of inflation in global markets. Inflation in the United States has reached 4.2%, the highest level in three years.
Under normal circumstances, this would push gold higher, as investors see it as a hedge against inflation. But in this case, markets are more concerned about another factor: interest rates.
The US Federal Reserve is showing no signs of cutting interest rates any time soon. On the contrary, there is a possibility that they will remain high or even rise to curb inflation. This is very important for gold because it is a “non-interest” asset – it does not generate income like bonds or bank deposits.
When interest rates are high, investors prefer instruments that provide guaranteed returns, making gold less attractive. This puts pressure on its price, Al Jazeera reports.
Another important factor is the strengthening of the US dollar. Since gold is traded in dollars, when the dollar strengthens, gold becomes more expensive for international buyers, reducing demand and pushing the price down.
According to financial analysts, markets are currently being influenced by expectations that interest rates could rise further this year, which is keeping gold under pressure. Although the conflict in the Middle East would normally boost its price, the economic effects of inflation and monetary policy are neutralizing this increase.
Experts point out that any improvement in the geopolitical situation, such as a peace agreement or a reduction in tensions in Iran, could positively affect the price of gold. However, even in that case, economic factors such as interest rates and central bank policy will continue to play a decisive role. The decline in the price of gold is not only related to the geopolitical crisis, but to a broader combination of economic factors: high inflation, expectations of high interest rates and the strengthening of the US dollar. Together, these factors are keeping gold under pressure, despite its traditional role as a “safe haven” in times of uncertainty.