Gold stabilizes after nine-day slide as Iran war reshapes market

Highlights

Gold stabilized after nine days of losses, but has fallen nearly 17% since late February.
Rising oil and gas prices have increased inflation risks and pressure on rate expectations, becoming the main negative factor for gold.
The war is changing golds role: instead of classic safe-haven demand, the market is seeing selling for liquidity and capital reallocation.

On Tuesday, prices recovered part of their earlier losses after a sharp selloff on Monday, when gold at one point dropped 8.8 percent. According to Bloomberg, the metal initially rose nearly 1% in Asian trading before slipping back again; spot gold was down 1.5% at $4,340.80.

The market remained highly volatile amid conflicting signals about possible de-escalation: Donald Trump announced a five-day delay in potential US strikes on Irans energy infrastructure, but an Iranian official rejected claims that negotiations were under way, while The Wall Street Journal reported that U.S. partners in the Persian Gulf could be drawn into the conflict.

Pressure from oil and interest rates

The main reason behind the selloff in gold is the sharp rise in inflation risks caused by surging oil and gas prices. Investors have been exiting gold as a liquid and profitable asset in order to reallocate funds during a period of broader market stress. Additional pressure comes from expectations of tighter monetary policy by central banks: higher energy prices reduce the likelihood of near-term easing, while rising yields increase the opportunity cost of holding gold, which does not generate coupon income.

The course of the war itself is also shaping golds performance. Uncertainty around the future operation of the Strait of Hormuz, damage to energy infrastructure in the Persian Gulf, and rising insurance and shipping costs are supporting elevated oil prices and intensifying concerns about a new wave of inflation.

Analysts note that a similar pattern emerged after Russias invasion of Ukraine in 2022, when an initial jump in demand for safe-haven assets was followed by months of declines in gold as the energy shock spread through markets and rate expectations hardened.

A new test for safe-haven assets

This matters for the market for two reasons. First, golds decline of more than 15% since the start of the conflict, including an intraday drop of 8.8% on Monday, shows that even traditional safe-haven assets can lose ground during an energy shock and a repricing of interest rates.

Second, the combination of expensive oil, the risk of disruptions through the Strait of Hormuz, and the possibility of more countries being drawn into the war means pressure on gold may persist even amid elevated geopolitical uncertainty.

We have previously highlighted that oil rebounds after Trump delays strikes on Iranian energy targets.

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