Historically, the adage "when cannons roar, gold's price soars" has been treated as an ironclad rule by investors. However, this year, as conflict reignited between Israel and Iran and the Middle East situation escalated comprehensively, crude oil prices surged in response. Yet gold, the safe-haven asset expected to benefit most, unexpectedly suffered a significant decline.
On March 3, the price of gold fell sharply by 4.46% in a single day. Although it experienced a minor rebound subsequently, it soon reversed course and declined further with increasing volume. In just the past two days, gold has lost approximately $200, and is now struggling to hold the critical support level of $5,000.
Silver fared even worse. Since March 2, its price has fallen nearly 15%, with a particularly sharp drop of 5.25% on March 3 alone, causing it to retreat to the $80 mark. As warfare intensifies and panic spreads, why has gold's safe-haven appeal suddenly diminished?
More importantly, what lies ahead for the price of gold?
**01: The Faltering Safe Haven - What Happened?** To understand why gold is falling, one must first identify what is currently unsettling the markets. The core variable is the price of oil.
Following the escalation of hostilities between Israel and Iran, the Strait of Hormuz—the world's most critical oil transit chokepoint—was effectively blocked. The price of Brent crude oil surged towards $120 per barrel, and although it has retreated somewhat recently, it remains firmly above $90. More concerningly, Iranian officials have stated their intention to drive oil prices to "$200."
Initially, when the conflict began, the price of gold did rise significantly. During the Chinese New Year holiday from February 18-23, military confrontations between the US and Iran intensified in the Persian Gulf, sharply increasing the risk of missile attacks. The situation deteriorated rapidly, especially after a joint US-Israel military action against Iran on February 28, which resulted in attacks on senior Iranian officials. During this period, market fears that the conflict would disrupt global energy supply chains triggered a strong flight to safety. Capital flowed out of stock and bond markets and into gold, driving the international gold price from around $4,900 per ounce in late February to briefly exceed $5,400, setting a new historical high.
However, this market logic was soon forcefully reversed. On March 3, Iran formally announced the blockade of the Strait of Hormuz. Brent crude oil surged 8% that day, and European natural gas prices jumped 40%. This sudden development made the market realize that soaring oil prices imply that inflationary pressures are becoming uncontrollable. Uncontrolled inflation, in turn, means the Federal Reserve cannot proceed with interest rate cuts.
According to CME FedWatch Tool data, market expectations for a March rate cut plummeted from 70% to just 2.5%. The probability of a June rate cut was slashed from 78% to 39%, and the total expected rate cuts for the year were reduced from 150 basis points to under 50 basis points. On that day, the US Dollar Index rose 0.7%, breaking above 99.5, and the yield on the 10-year US Treasury note jumped 7 basis points to 4.05%. This led to a sharp increase in the opportunity cost of holding gold, prompting significant capital outflows from gold into US dollars and US Treasuries.
Furthermore, as the Israel-Iran conflict continued to intensify and the Strait of Hormuz remained practically blocked, international crude oil prices climbed further, briefly touching the extreme level of $120 per barrel. Concurrently, with gold prices already at a historic peak near $5,400, substantial profit-taking opportunities had accumulated. This incentivized institutional and short-term investors to sell their holdings to realize gains, triggering a wave of programmatic selling.
In essence, this represents a powerful and comprehensive shift in the market's trading rationale for gold. The logic chain is clear: Middle East conflict → surging oil prices → rising inflation expectations → reversal of rate cut expectations → surging US dollar and Treasury yields → selling of gold at high levels. Simply put, a stronger US dollar leads to weaker gold prices.
This inverse relationship often holds true because gold is a non-yielding asset. Higher US interest rates increase the opportunity cost of holding gold. In other words, a stronger dollar makes dollar-denominated gold relatively cheaper. Similarly, a rising US Dollar Index typically corresponds with weakening gold prices. Plotting the year-to-date trajectories of the US Dollar Index and gold price reveals an almost perfect inverse correlation.
Of course, under extreme safe-haven demand scenarios—such as global war risks or aggressive central bank gold buying—the dollar and gold can sometimes rise simultaneously, as seen briefly at the onset of the Russia-Ukraine war. However, this time, the gold price had already surged significantly beforehand, largely pricing in the potential for Israel-Iran conflict. Therefore, the current price correction is a rational market development.
The key question now is: what happens next? The answer is straightforward: as long as oil prices continue rising, inflationary pressures persist, and expectations for Fed rate cuts remain suppressed, gold will find it difficult to recover.
Examining the chart for the US Dollar Index shows it has not only breached the 100 level but is also advancing with both rising prices and volume—a technically potent bullish trend. Combined with suppressed Fed rate cut expectations due to high inflation, the index has potential to climb further. In contrast, gold's price chart shows it has fallen back to the key $5,000 support level but is already showing signs of difficulty holding this ground. A break below this level could lead to further short-term declines.
**02: Short-Term Pressure vs. Unchanged Long-Term Logic** In the short term, as the "stronger dollar, weaker gold" trading dynamic continues to strengthen, selling pressure on gold is likely to remain significant. However, it is crucial to recognize that the US Dollar Index's strength does not solely reflect a fundamentally stronger US dollar, but rather relative weakness in other major currencies like the Euro, Japanese Yen, and British Pound. Energy crises and geopolitical conflicts have pushed economies like the EU, Japan, and the UK into deeper predicaments compared to the US.
The US dollar itself also faces its own challenges. Gold, as the primary asset serving as an anchor in the trend of de-dollarization, is the asset that has been genuinely favored and aggressively accumulated by global central banks and financial institutions in recent years.
The rules of the game for the global gold market changed fundamentally after the Russia-Ukraine war in 2022. The moment the US froze $300 billion of Russian foreign exchange reserves, nations worldwide realized that even "safe" dollar assets are ultimately an extension of US credit—and subject to US political will. This triggered an unprecedented wave of de-dollarization.
From 2022 to 2024, global central banks were net purchasers of over 1,000 tonnes of gold annually, setting historical records. In 2025, despite high gold prices, central banks still purchased 863 tonnes, far exceeding historical averages. Furthermore, the vast majority of central banks have no plans to reduce their holdings. A World Gold Council survey indicates that 95% of respondent central banks expect to continue increasing their gold reserves over the next 12 months. Their purchases are driven not by short-term speculation but by long-term strategic considerations for national economic security.
As long as risks to US dollar信用 persist and the de-dollarization trend continues, central banks will not cease buying gold. As of February 2026, the Chinese central bank had increased its gold reserves for 16 consecutive months, adding 30,000 ounces in February alone, bringing total reserves to 74.22 million ounces. Simultaneously, central banks have been consistently reducing their holdings of US Treasury securities. The poor reception of a US Treasury auction of $16 billion in 20-year bonds in late February is a clear market signal. The global trend towards de-dollarization appears irreversible.
In this context, gold, as the ultimate supra-sovereign monetary asset not reliant on any single nation's信用, naturally becomes the ultimate safe haven for central banks globally. Every time the信用 of US debt is questioned, every time the dollar is used as a financial weapon, more capital seeks to exit the dollar system and flow into gold.
Latest CFTC commitment of traders data shows that hedge funds' net-long positions in gold continue to hit new highs. Global gold ETF inflows are also reaching record levels. Meanwhile, physical gold inventories are persistently declining. When capital is continuously flowing into gold while its physical supply is shrinking, the direction for the long-term price trajectory seems evident.
J.P. Morgan once estimated that a shift of just 0.5% of globally held dollar assets into gold would alone be sufficient to push the gold price to $6,000. This trend is already underway.
**03: The Key Date - Next Wednesday** On March 19, the Federal Open Market Committee will announce its interest rate decision. Although the market has fully priced in no rate cut for March, two aspects warrant close attention:
First, the "dot plot," which reflects FOMC members' projections for the future path of interest rates. This is potentially more significant than the immediate rate decision itself as it guides future expectations.
Second, the tone and statements from Fed Chair Jerome Powell.
If either the dot plot or Powell's commentary hints even slightly at the possibility of a rate cut in June, global capital could quickly flow back into stock markets and gold, pushing asset prices higher. However, if the signals are more hawkish than expected, US stocks and gold could face another wave of selling pressure, with gold likely experiencing greater volatility.
For gold investors, these are ultimately short-term market noises. From a long-term perspective, as long as the fundamental logic of global de-dollarization remains intact, the bull market for gold is far from over. The current decline in gold prices does not signify an end, but rather potentially the beginning of a new phase for strategic positioning.
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