Gold has lost more than 20% since the Iran war began on February 28, even as geopolitical tension persisted, and this week posted its steepest monthly drop since 2008. Analysts say high interest rates and a strong dollar can outweigh gold’s safe-haven pull, while central bank buying and eastward demand are reshaping what supports the metal over the long run.
Gold no longer rallies on every crisis. The metal was at about $5,278 an ounce when the Iran war started on February 28 and held largely steady in the first weeks of the conflict. From that point until Friday, when it gained 1.52% to finish at $4,175.07, it has lost more than 20%. After hitting record highs in January, gold this week posted its steepest monthly drop since 2008.
The metal tends to perform better when uncertainty combines with a weaker dollar, monetary easing or declining confidence in financial assets. It struggles when geopolitical concerns are outweighed by high interest rates and a strong greenback. Noureldeen Al Hammoury of the Dubai-based Equiti Group told The National that gold “is not designed to rise during every war, political shock or market sell-off”. In the short term, he added, the metal competes with cash and government bonds and is highly sensitive to the dollar and real interest rates.
Analysts weigh a possible breakout
Despite the decline, the World Gold Council said in its midyear outlook this week that the commodity still ranks among the top performers over the past year. The report acknowledged that the first half showed gold remains sensitive to heightened geopolitical concerns and abrupt shifts in sentiment.
The council said a possible breakout could tow gold back to $4,500. JPMorgan on Friday projected the same level for Q4 2026 and $4,300 in Q3. Analysts also flagged that resilient growth and rising yields could push gold lower, though a fall of more than 10% to 15% may be tempered by bargain-hunting demand.
Central banks and Eastern demand build a floor
Persistent central bank purchases, sovereign debt concerns, inflation and currency diversification have created structural demand that supports gold even outside periods of acute geopolitical stress, said Ashish Vijay of Tiara Gems and Jewellery. Emerging-market central banks now treat gold as monetary insurance that carries no counterparty risk and cannot easily be frozen by another government, Al Hammoury said.
Demand is also shifting East. The People’s Bank of China increased its gold reserves for a 19th consecutive month in May, while Chinese net gold imports rose sharply in the first quarter. Western flows may still shape the short-term price, but Asian households and official buyers increasingly provide the long-term support.
Source: The National
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