Why Did Gold Prices Drop Amidst the Israel-Iran War?
As many people already know, gold is one of the most sought-after safe haven assets amidst geopolitical uncertainty, one of which is war. But what happened in the last few days was the opposite. Why is that? Let's discuss the reasons one by one:
1. Ceasefire Eases Concerns
Trump's announcement of an Israel-Iran ceasefire weakened safe-haven demand, because the market considered the conflict not as easy to predict. Gold prices immediately fell to a two-week low. On the other hand, the stock market rally and falling oil prices are signs of easing geopolitical tensions, so investors are switching from gold to risk assets.
2. Strengthening US Dollar
The dollar is strong again as investors return to dollar assets, reducing demand for gold. The strengthening of the DXY by around 0.3–0.5% puts direct pressure on XAU because gold is considered more expensive for holders of other currencies.
3. Fed Interest Rate Expectations
The market is currently not too confident that the Federal Reserve will soon lower interest rates. High interest rates make gold less attractive, because gold does not provide a yield, unlike US bonds which become more attractive when interest rates are high.
4. No Real Escalation After Conflict
Middle East conflicts often trigger a spike in gold prices, only if there is a real escalation such as further attacks, major retaliation, direct involvement of major countries. But in this case, the market sees the situation as still under control after the ceasefire statement.
5. Decline in Physical Demand
In several major importing countries (such as India & China), demand for physical gold has slowed down because, previously gold prices were too high, there were import regulations/taxes, weakening purchasing power.
The conclusion is that although in theory war = rising gold prices, the market still has to look at the deeper context: whether the conflict is really escalating, whether the dollar is rising, what direction the Fed is taking, and where investors feel “safer” at that time.
Source: (mrv@Newsmaker)
