Gold slump raises doubts over safe-haven appeal

Gold prices have fallen sharply since the start of the Iran conflict, dropping more than 15% and casting doubt on the metal’s traditional role as a safe-haven asset during times of crisis.

While gold initially held steady in the early days of the conflict, it has since been caught in broader market turmoil. Investors have been selling gold to cover losses in equities and bonds, particularly after strong gains over the past two years.

Analysts say this behavior is not unusual. During periods of market stress, investors often liquidate profitable assets like gold to raise cash, especially when facing margin calls in other markets. Data shows significant outflows from gold exchange-traded funds since the conflict began.

There is also speculation that some central banks may consider selling gold reserves to fund rising costs, including defense spending, though this has not yet been confirmed in official data.

Gold had reached record highs earlier this year, but the rally reversed in March. Prices have dropped significantly since late February, though they remain historically elevated despite the recent decline.

Market experts point to several factors behind the downturn, including profit-taking, reduced risk appetite, and increased participation by speculative investors, which has made gold more volatile.

Rising interest rate expectations have also weighed on gold. Higher yields on bonds make them more attractive compared to gold, which does not generate income, leading some investors to shift their portfolios.

Despite the recent slump, some analysts believe gold could recover once market conditions stabilize and investor confidence returns. Historical trends suggest that while gold may fall during initial periods of panic, it can regain its strength over the longer term as a hedge against uncertainty.