Gold Prices Defy Expectations, Slip Amid Escalating West Asia Conflict
In a surprising turn of events, gold prices have slipped in recent sessions even as geopolitical tensions escalated dramatically in West Asia, confounding investors who traditionally view the precious metal as a safe-haven during periods of uncertainty. The ongoing military exchanges involving the United States, Israel, and Iran over the past 14 days have rattled global markets, with benchmark indices like Nifty and Sensex declining more than 5% each and crude oil surpassing the $100 mark.
Counterintuitive Market Behavior Explained
Market participants note that the recent decline in gold prices, despite the onset of war, appears counterintuitive. Ponmudi R, CEO of Enrich Money, explained that the sharp spike in crude oil prices and rising geopolitical tensions initially triggered a broad risk-off sentiment. This prompted investors to raise cash and trim leveraged positions across asset classes. "In such phases, even traditional safe-haven assets like gold can face short-term selling pressure as investors liquidate holdings to meet margin calls or rebalance portfolios," he said.
He added that the strength of the US dollar has played a pivotal role. During global uncertainty, capital often flows into the dollar and US Treasuries, which typically weighs on precious metals because they are priced in dollars. The Indian rupee weakened past the 92.3475 mark against the US dollar, hitting a fresh all-time low on Thursday, further exacerbating the pressure on gold.
Overlapping Factors Shaping the Trend
Several overlapping factors are influencing the current trend in gold prices:
- Profit-Booking: After a strong rally earlier this year and in 2025, some investors chose to lock in gains as volatility increased, given prices were already at elevated levels.
- Crude Oil Impact: Jigar Trivedi of IndusInd Securities highlighted that crude oil has a direct relationship with inflation. Higher oil prices tend to push inflation higher, which can negatively affect the economy and force the US Federal Reserve to reassess its policy stance.
- Dollar Strength: A stronger dollar makes gold more expensive for buyers using other currencies, dampening demand. Trivedi noted that once the war premium fades, investors are likely to refocus on underlying fundamentals such as monetary policy, the dollar index, and central bank purchases.
Investment Outlook and Recommendations
Despite the short-term weakness, experts maintain a long-term bullish outlook for precious metals. Tata Mutual Fund, in a report quoted by ET, stated, "We reiterate investing in gold over supportive fundamentals and market uncertainties. Any decline in prices over dollar rally or ease in tensions provides opportunity to accumulate/invest in gold."
The report emphasized that corrections following strong rallies are natural and do not undermine the structural factors supporting gold, which remain intact. These include:
- Geopolitical fragmentation
- Supply constraints
- Sustained central bank purchases as countries diversify reserves away from fiat currencies, with global central bank buying of gold nearly doubling over the past decade
For silver, which has declined about Rs 14,000 or 5% since the conflict erupted, the report indicated that geo-economic conditions along with structural and cyclical fundamentals could continue to support prices. Investors may consider accumulating on declines, especially given the broader supportive backdrop for precious metals. Silver’s outlook remains tied to a recovery in industrial demand, and a staggered investment approach may be suitable for medium- to long-term exposure.
Ponmudi concluded that the recent weakness appears to be more of a short-term adjustment rather than a structural shift in long-term demand for precious metals as safe-haven assets.
