Gold prices have fallen approximately 6% since the outbreak of the Iran conflict two weeks ago, contrary to expectations of a rally, raising questions about its role as a safe-haven asset.
According to analysis from J.P. Morgan's commodity research report released on March 13, this initial sell-off of gold during periods of rising market stress is a well-documented historical pattern, not a sign of its safe-haven function failing. Historical data suggests this early pullback often presents a tactical buying opportunity, with gold prices typically rebounding quickly and recovering losses within several trading days.
J.P. Morgan identified multiple factors driving the recent gold sell-off: surging energy prices raised inflation expectations, prompting markets to significantly scale back forecasts for Federal Reserve interest rate cuts. Combined with a sharp rebound in the U.S. dollar, this created a directly bearish backdrop. However, the primary driver, according to the bank, was broad de-risking triggered by increased stock market volatility. When the VIX index is elevated and climbing, investors facing margin calls, portfolio rebalancing needs, and Value at Risk (VaR) shocks are forced to raise liquidity across asset classes, with gold holdings often being sold first. This led to noticeable outflows from global gold ETFs last week.
In the short term, J.P. Morgan warns gold could face further downward pressure, especially if equity markets price in a sharper deterioration of the global economic outlook, triggering another wave of de-risking. Continued market adjustment to Fed rate cut expectations could also pose an additional drag. Nevertheless, the bank emphasizes that the longer energy supply disruptions persist and the more substantial their impact on inflation and growth, the more likely gold's macroeconomic backdrop is to "shift rapidly and significantly to bullish." A subsequent Fed pivot towards easing would further amplify this trend.
Based on J.P. Morgan's latest price forecasts, the bank maintains a strong bullish outlook for gold, projecting an average price of $5,100 per ounce in Q1 2026, rising to $5,530 in Q2, reaching $5,900 in Q3, and climbing further to $6,300 in Q4.
J.P. Morgan's analysis indicates that gold being sold off in the initial stages of market stress is a structural pattern supported by historical data. Weekly data since 2006 shows that when the VIX is high (30 or above) and rising, gold's average weekly return turns negative—the only VIX regime where this occurs—with the probability of a gold price increase during such periods being only 45%.
The logic behind this pattern is that during sharp market stress, investors face multiple constraints—margin calls, portfolio rebalancing, and VaR shocks—forcing them to reduce risk exposure broadly across asset classes to raise liquidity. Gold, being a highly liquid asset, is not immune. Concurrently, the U.S. dollar often exhibits asymmetric strength when the VIX is high, creating an additional drag on dollar-denominated gold prices.
J.P. Morgan also notes that the boost to gold from geopolitical risk premia is often short-lived, frequently following a "buy the rumor, sell the news" dynamic, which explains why gold failed to sustain upward momentum after the Iran conflict erupted.
Historical data further reveals that de-risking induced gold declines are typically short-lived, followed by rapid and significant rebounds. Analyzing 25 distinct events since 2006 where the VIX first closed above 30, J.P. Morgan found that selling pressure was most concentrated in the first two trading days after the breach, with gold prices falling an average of about 0.5%. However, from the third trading day onward, gold prices on average began a sustained and noticeable rebound. By the fourth trading day, prices had typically recovered all losses and exceeded pre-break levels. By around the tenth trading day, the average gain from trough to peak exceeded 2%.
Notably, in 22 of these 25 events, the VIX fell back below 30 within approximately 10 to 15 trading days. J.P. Morgan stresses that the direction of the VIX movement is crucial—gold historically performs most strongly when the VIX is high but declining, contrasting sharply with its weakest performance when the VIX is high and rising, highlighting the VIX trend's importance as a short-term tactical signal for gold.
The bank also cautions about tail risks: during the 2008 global financial crisis, the 2011 period, and the 2020 COVID-19 pandemic, the VIX remained elevated for extended periods, prolonging or interrupting gold's rebound process, representing exceptions to this pattern that investors should remain aware of.
From a longer-term perspective, J.P. Morgan believes that if disruptions in the Strait of Hormuz persist, gold will ultimately rally significantly, supported by two reinforcing logics.
The first is its inflation-hedging value. Examining five historical periods since 2000 where U.S. CPI rose rapidly and sustained an increase of over 2.5 percentage points, the bank found that gold posted double-digit gains and outperformed the broad Bloomberg Commodity Index (BCOM) in four out of five instances. The exception was the post-pandemic inflation cycle (2020-2022), a unique scenario driven by a positive demand shock combined with supply chain constraints, where broad commodities significantly outperformed gold. J.P. Morgan argues that if the current oil price shock evolves into a stagflationary environment, gold's value as an inflation hedge would become even more pronounced.
The second logic is the expectation of a Federal Reserve policy pivot. Citing analysis from its economists, J.P. Morgan suggests that moderate oil price increases currently support the Fed holding rates steady. However, if oil prices rise substantially and sustainably to $120 per barrel or higher, economic downturn risks would non-linearly amplify, substantially weakening the labor market. Despite high headline inflation, the pass-through to core inflation would be relatively limited, leading the Fed likely to ease policy due to its dual mandate, particularly concerning employment. J.P. Morgan emphasizes that once an accelerated Fed rate-cutting cycle begins, it would significantly amplify gold's upward momentum.
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