Why Aren’t Gold and Silver Rallying Like Usual During Geopolitical Conflict?

Why Aren’t Gold and Silver Rallying Like Usual During Geopolitical Conflict?

Gold was supposed to go up when the war started. That’s the way it has always worked, at least in the conventional investor playbook, which treats geopolitical conflict as an automatic catalyst for precious metals and safe-haven buying as the natural reflex of a market under stress. But since the U.S. and Israel launched strikes on Iran on February 28, gold has dropped more than 11%, which has left a lot of investors staring at their portfolios, wondering whether the rules have changed.

They haven’t. What’s changed is the environment those rules are operating in, which is more complicated than anything the standard safe-haven playbook was built to handle.

The Traditional Relationship: Why Metals Historically Rise During Conflict

“Gold prices reflect not just the impact of a particular event but, more importantly, the policy response that follows,” said Amy Gower, metals and mining commodity strategist at Morgan Stanley Research.

That framing matters because the instinct to buy gold during conflict has a long track record behind it. When institutions get unstable, and fiat currency feels risky, physical metals hold tangible value in ways that stocks, bonds, and currencies often can’t, which is why the flight-to-safety trade into gold is so deeply embedded in how investors think about crisis management. Historically, it has played out more often than not, which is also why the current divergence has been so disorienting.

Deutsche Bank’s metals research team found that in 24 of 29 geopolitical events since 1987, gold traded below its crisis-day starting price at some point within the first 25 trading days, which suggests that short-term drawdowns during conflict are historically common rather than anomalies.

In March alone, gold fell 14.5%, while the S&P 500 lost 7.8% and the U.S. Treasury Total Return Index declined 3.6%, according to Morgan Stanley, marking a notable departure from prior conflicts, when gold typically outperformed during downturns. The crisis premium is real, but it depends heavily on what happens next in monetary policy, which is where this particular conflict took an unexpected turn almost immediately.

The Strong Dollar Effect: The Biggest Counterforce

Most investors know that gold and the dollar move in opposite directions, but the reason is more mechanical than most people realize, and it matters a lot right now. Because gold is priced in U.S. dollars globally, a stronger dollar makes gold more expensive in other currencies, which pushes international buyers out of the market and puts direct downward pressure on prices, even as geopolitical risk rises.

When oil prices surge, the dollar tends to strengthen alongside them, a dynamic that has been running against gold since the Strait of Hormuz disruptions sent crude above $100 a barrel. Higher oil prices flow through the global economy as a dollar-denominated event, pushing capital toward U.S. assets and reinforcing the greenback’s reserve-currency role at exactly the moment investors might otherwise be moving into gold.

According to Carsten Fritsch, commodities analyst at Commerzbank, “the gold price has not benefited from the uncertainty caused by the Iran war. On the contrary, it is actually trading lower than before the war began,” which reflects how completely the dollar dynamic has overridden the safe-haven trade in this particular conflict.

Rising Bond Yields and Interest Rates: Competing for Capital

Gold doesn’t pay interest, which is normally fine, but becomes a real problem when bonds are offering meaningful yields and the Fed looks unlikely to cut rates anytime soon. In that environment, investors who might otherwise hold gold start doing the math on the opportunity cost, which has been rising steadily since the Iran war began.

The chain of causation here is worth walking through because it explains why this particular conflict has been so damaging to gold specifically. Higher oil prices reignited inflation fears, pushing market expectations away from Fed rate cuts and toward a hold-or-hike scenario, sending bond yields higher and making the opportunity cost of holding a non-yielding asset like gold more expensive by the week. According to Gower, “with the conflict triggering an energy supply shock that has reduced hopes for lower U.S. interest rates, it is not surprising that gold has struggled to work as a safe haven this time.” She went further on where that leaves gold’s identity in the current market: “Gold’s sensitivity to monetary policy has taken over as the key price driver. This has overshadowed its safe-haven status and reduced its effectiveness as a hedge against both geopolitical and inflation risks.”

That pattern has precedent. Mark Haefele at UBS Global Wealth Management pointed to the 2022 Russia-Ukraine conflict, where gold jumped 15% when the war started, then fell 15-18% as the Federal Reserve raised rates. “Gold is more of a hedge against the wider impact of conflicts, rather than direct wartime threats,” he said, which is a distinction that becomes especially important when the conflict’s primary economic effect is inflationary.

Liquidity Events and Forced Selling: The Hidden Factor

Turkey’s central bank sold 52 tons of gold and arranged swaps totaling 79 tons between February 27 and March 27. ETFs liquidated roughly 90 of the 150 tons they had accumulated in January and February. Neither of those moves had anything to do with losing faith in gold.

Oil sales generate dollars. When Strait of Hormuz disruptions cut off export flows across the Persian Gulf, the governments that depend on those inflows stopped receiving them, which meant gold reserves became the funding source for meeting obligations that dollar revenues would normally cover.

Kristian Kerr, head of macro strategy at LPL Financial, called gold “part commodity, part reserve asset and, during periods of stress, a stand-in for dollars.” Governments hit by major energy disruptions typically need to rebuild fuel supplies, stabilize budgets, and replenish foreign exchange reserves before that selling stops, all of which requires dollars first.

What Investors Should Watch Instead of Headlines

Four metrics explain gold’s direction better than any headline: real interest rates, the U.S. Dollar Index, central bank buying trends, and inflation expectations.

According to Matt Bance, solutions strategist and portfolio manager at T. Rowe Price, “gold’s path over the coming months will be shaped by four key, interrelated drivers: real yields, the scale and duration of the energy and geopolitical shock, the strength of the US dollar, and asset flows.” Central bank buying is the most durable of those signals right now.

Central banks added 244 tons of gold on a net basis in Q1 2026, a multi-year trend that reflects deliberate diversification away from dollar-dominated reserves and provides a floor that monthly price swings don’t erase.

The Rules Haven’t Changed, The Market Has Evolved

JP Morgan is holding its year-end 2026 gold target at $6,300 per ounce. Deutsche Bank is at $6,000. UBS set a $6,200 target for September 2026. Every major bank with a public forecast is pointing in the same direction, and none of them have moved off it because of what’s happened since February.

Morgan Stanley forecasts gold rising to $5,200 per ounce in the second half of 2026 as central banks and ETFs resume purchases and markets begin pricing in Fed rate cuts. Gower noted that “gold is likely to remain sensitive to real yields, but we see room for further upside,” while cautioning that “gold prices may suffer if markets begin to anticipate prolonged rate holds or even hikes. At the same time, upside in a resolution scenario could be limited, as already-elevated prices may constrain demand from ETFs, central banks and consumers.”

The forces that drove gold up 65% in 2025 haven’t changed. Central bank diversification is still ongoing, government debt is still rising, and geopolitical fragmentation is accelerating.

What has changed is the short-term policy environment, and that’s a different problem than a broken thesis. Investors who have held physical gold and silver through prior corrections know the difference, and those who don’t tend to learn it the hard way.

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