Gold has stumbled in the wake of the Iran conflict after delivering consistent annual gains since 2021—including a striking 55% surge in 2025. The recent selloff, and the metal’s underperformance relative to other asset classes, is prompting investors to question gold’s traditional role as a safe haven.
In March, the first month of the conflict, gold fell 14.5%, while the FTSE All-World Index dropped 9%, the S&P 500 lost 7.8% and the U.S. Treasury Total Return Index declined 3.6%. This marks a notable departure from prior geopolitical crises, when gold typically outperformed and provided protection during downturns.
The weak performance extended into April: While equities recovered to near pre-conflict levels in the first half of the month, gold remains down roughly 10% from where it stood before the conflict, recouping only about one-third of its losses. Its performance has tracked more closely with U.S. Treasuries, suggesting that gold is currently more sensitive to real interest rates and monetary policy than to geopolitical risk.
“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,” says Amy Gower, Morgan Stanley Research’s Metals & Mining Commodity Strategist.
A key dynamic is behind this shift: Gold doesn’t always provide protection against inflationary shocks. Elevated oil prices and supply chain disruptions can push interest rate expectations higher—an environment that tends to hurt gold prices.
“Gold’s sensitivity to monetary policy has taken over as the key price driver,” Gower notes. “This has overshadowed its safe-haven status and reduced its effectiveness as a hedge against both geopolitical and inflation risks. Gold prices reflect not just the impact of a particular event but, more importantly, the policy response that follows.”
Central Bank Sales Add Pressure
Additional downward pressure has come from changes in central bank activity. Having bought significant amounts of gold since 2022, central banks paused purchases in March. Turkey’s central bank, for example, sold 52 tons of gold between Feb. 27 and March 27 and arranged swaps totaling 79 tons. Meanwhile, India delayed approvals for bullion imports.
Exchange-traded funds (ETFs), another key buyer for gold, also turned into sellers—liquidating roughly 90 tons of the 150 tons accumulated in January and February.
However, there are early signs that these pressures may be easing. ETFs have already repurchased nearly half of the gold they sold in March. China reported its largest monthly increase in gold reserves since January 2025. A weakening U.S. dollar is also providing support for prices.
Recovery Ahead
With central banks and ETFs resuming purchases—and expectations for the Federal Reserve to remain on hold for the rest of 2026—Morgan Stanley Research forecasts gold prices could rise to $5,200 per ounce in the second half of the year, about 9% above April 22 levels. This outlook is less optimistic than an earlier projection of prices reaching as high as $5,700 per ounce under a more bullish scenario.
“Gold is likely to remain sensitive to real yields, but we see room for further upside,” Gower says.
Morgan Stanley economists expect the Fed to cut interest rates in January and March of 2027, by 25 basis points each time.
“This should benefit gold, with ETF purchasing decisions particularly sensitive to policy signals and gold now realigning with real rates,” Gower adds.
Still, risks to the outlook remain. A prolonged conflict with Iran—especially if it disrupts energy flows through the Strait of Hormuz—could sustain elevated oil prices and inflation, complicating the Fed’s policy path.
“Gold prices may suffer if markets begin to anticipate prolonged rate holds or even hikes,” Gower warns. “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.”
