Why Gold and Silver Are Falling Despite the Escalating US-Iran War
Gold and silver, traditionally considered the most reliable safe-haven assets during geopolitical crises, are behaving unexpectedly as the conflict between the United States, Israel and Iran intensifies. Instead of rallying sharply amid rising tensions in West Asia, both precious metals have declined significantly over the past several days, puzzling investors and market watchers.
Historically, wars and geopolitical shocks tend to push investors toward gold and silver as a hedge against uncertainty. However, the current market environment is being shaped by a combination of a strong US dollar, rising demand for US Treasury bonds, profit-taking after months of gains and changing investor behaviour across global markets.
The unusual price movement highlights how modern financial markets respond to geopolitical events in a more complex manner than in the past, where multiple macroeconomic forces interact simultaneously.
Gold and Silver Prices Decline Even as Geopolitical Tensions Escalate
Nearly ten days after the United States and Israel launched military strikes against Iran, the Middle East conflict has expanded, creating instability across the region. Despite this escalation, gold and silver prices have moved lower rather than higher.
When the conflict began on February 28, gold was trading close to $5,416 per ounce in global markets. Since then, prices have slipped about 5.7 percent, with gold trading around $5,103 per ounce by March 9.
The price movement has been mirrored in India’s commodity markets as well. On the Multi Commodity Exchange (MCX):
-
Gold was trading near ₹1.67 lakh per 10 grams on February 28
-
Prices have fallen to around ₹1.60 lakh, marking a decline of roughly 4.2 percent
Silver has seen an even sharper correction over the same period:
-
Silver was trading near ₹2.89 lakh per kilogram
-
Prices have now fallen to approximately ₹2.63 lakh, representing a decline of nearly 9 percent
The price drop has surprised investors because precious metals typically surge when geopolitical risks rise.
Also Read : Rupee Hits Record Low — Could Rising Crude Oil Prices Push It Even Weaker?
Strong US Dollar Is Reducing the Safe-Haven Appeal of Gold
One of the most significant factors behind the decline in gold prices is the strengthening US dollar, which has emerged as the preferred safe-haven asset during the ongoing conflict.
When geopolitical tensions escalate in oil-producing regions such as West Asia, crude oil prices often rise sharply. Since global oil trade is largely denominated in US dollars, demand for the currency tends to increase when oil prices climb.
As a result, the US dollar has strengthened significantly in recent weeks. A stronger dollar generally puts downward pressure on gold prices because the metal becomes more expensive for international buyers using other currencies.
At the same time, investors are allocating more capital to US Treasury bonds, which are widely considered one of the safest assets during periods of global uncertainty.
This shift in capital flows has reduced the urgency for investors to move heavily into gold and silver despite the escalating geopolitical situation.
Profit Booking After a Strong Rally Is Triggering a Correction
Another key reason behind the decline in gold and silver prices is profit-taking by investors after the metals experienced a strong rally over the past several months.
Gold had already delivered significant returns leading into the current geopolitical crisis, which meant many investors had accumulated positions earlier. When the US-Iran conflict triggered an initial price spike, some investors chose to book profits instead of adding new positions.
Satish Dondapati, Fund Manager at Kotak Mutual Fund, explained:
“Gold and silver had rallied significantly over the past few months, so when prices jumped after the news, some investors booked profits, which led to a correction rather than a sustained sharp rise.”
Such corrections are common in financial markets when a major event occurs after an asset has already experienced an extended rally.
Investors Are Spreading Safe-Haven Demand Across Multiple Assets
Another important factor influencing precious metal prices is the diversification of safe-haven investments in modern financial markets.
In earlier decades, gold was often the primary destination for investors seeking protection during geopolitical crises. Today, however, investors have access to a wider range of defensive assets.
In the current market environment, many investors are allocating funds across several safe-haven instruments, including:
-
US Treasury bonds
-
US dollar holdings
-
Energy commodities such as crude oil
-
Defence sector stocks
Because investors now distribute capital across multiple hedging assets, gold is no longer the only beneficiary of geopolitical risk, which limits the scale of price rallies.
Equity Market Selloff Is Also Pressuring Precious Metals
The decline in global equity markets has also contributed to the correction in gold prices.
Indian stock markets recently witnessed a sharp selloff, with the Sensex and Nifty falling more than 1.7 percent, while global markets also experienced volatility due to rising crude oil prices and geopolitical tensions.
In such situations, investors sometimes sell gold holdings to generate liquidity and cover losses in other parts of their portfolios.
Dondapati noted:
“When equities decline sharply, investors sometimes sell gold to raise liquidity. Since gold has given strong returns over the last year, some investors are booking profits or selling holdings to cover losses in other assets.”
This liquidity-driven selling can temporarily push gold prices lower even during periods of heightened geopolitical risk.
High Interest Rates Are Limiting Gold’s Upside
Another important factor affecting gold prices is the current high global interest rate environment.
Unlike bonds or fixed-income instruments, gold does not generate interest income. When interest rates are high, investors often prefer assets that offer regular yields.
Aksha Kamboj, Vice President of the India Bullion & Jewellers Association (IBJA), explained:
“The appreciation in the US dollar and the increase in US bond yields due to inflation and delayed cuts in interest rates are limiting the upside in gold prices.”
Higher bond yields increase the opportunity cost of holding non-yielding assets such as gold, which reduces investor demand.
Kamboj also added that rising geopolitical tensions have pushed more investor money into energy markets.
“All investor money is going towards crude oil due to war escalation in anticipation of oil shortage and hence gold prices have temporarily taken a pause.”
Here’s What Happened Today and Why Traders Reacted
Despite the intensifying US-Iran conflict, several financial market factors influenced gold and silver prices during the latest trading session.
Key developments that shaped market reactions include:
-
Strengthening US dollar amid rising crude oil prices
-
Increased demand for US Treasury bonds
-
Profit-booking by investors after months of rally
-
Liquidity adjustments following equity market declines
-
High interest rates making bonds more attractive than gold
For traders, these factors indicate that macroeconomic forces are currently playing a larger role in price movements than geopolitical headlines alone.
Why the US-Iran Conflict Is Different From the Russia-Ukraine Crisis
Analysts note that the current geopolitical environment differs significantly from the conditions during the Russia-Ukraine conflict in 2022, when gold prices surged sharply.
Renisha Chainani, Head of Research at Augmont, said the current financial landscape has changed.
“The key difference from the Russia-Ukraine crisis is that the US dollar and treasury yields are currently very strong, which reduces the safe-haven appeal of gold.”
She added that modern financial markets are more diversified than in the past.
“Financial markets today are more liquid and diversified, with investors also moving into the dollar, energy assets and defence stocks as alternative hedges.”
Another factor is investor positioning. Gold had already rallied strongly in 2025, meaning many investors had already accumulated positions before the conflict escalated.
What Investors Should Watch Going Forward
Despite the recent correction, analysts believe gold and silver could regain momentum if geopolitical tensions intensify further or financial market volatility increases.
However, the direction of precious metal prices in the near term will depend on several key factors:
-
Movement in the US dollar
-
Trends in global bond yields and interest rates
-
Developments in the Middle East conflict
-
Investor demand for alternative safe-haven assets
For now, many market participants believe the conflict may remain relatively contained rather than turning into a prolonged global war. As a result, panic buying in gold has remained limited.
If geopolitical risks escalate further or global markets face deeper volatility, precious metals could once again reclaim their traditional role as the world’s most trusted safe-haven assets.
