Why the Iran War Has Caused Gold Prices to Drop

Gold is widely considered a safe-haven asset during periods of geopolitical uncertainty. However, since the outbreak of the Iran war, gold prices have fallen by around 13%, surprising investors who expected the metal to benefit from rising tensions. Other major assets have also declined, but not as sharply. 

The Nasdaq has lost roughly 8% while the S&P 500 is down about 7%. Meanwhile, Bitcoin has fallen only around 2%. Several factors help explain gold’s unexpected weakness. 

First, the metal had already experienced a remarkable rally before the conflict began, with investors responding to other geopolitical tensions, economic uncertainty and concerns about financial markets. Gold reached a record high of nearly $5,600 an ounce at the start of the year. 

Although it has since dropped to about $4,490, it remains almost 50% higher than it was 12 months ago. That strong run may have left gold vulnerable to profit-taking. 

Prof. Campbell Harvey of Duke University’s Fuqua School of Business notes that gold has historically tended to perform poorly after reaching major highs. From this perspective, the current decline could be viewed partly as a correction following an unusually strong rally. 

Gold’s safe-haven status is also not guaranteed during every crisis. A 2025 study determined that gold rose during 8 of the eleven major stock-market selloffs examined since the late 80s. However, the metal has also shown that it can be volatile during periods of geopolitical stress rather than automatically rising whenever a crisis occurs. 

In other words, gold may provide protection in some crises, but it does not necessarily respond positively to every conflict or shock, which means that investors can suffer losses even when global uncertainty is increasing. 

Another major factor is the rise in U.S. Treasury yields. The 10-year Treasury yield has climbed to around 4.45%, an increase of nearly half a percentage point. Bonds often become more attractive when yields rise because they provide investors with regular interest payments, while gold generates no income. 

Markets are also expecting the Federal Reserve to keep rates of interest higher for longer, partly because the conflict could add to inflationary pressures. Higher rates generally make non-interest yielding assets such as gold less attractive. 

Despite the recent selloff, gold’s long-term performance remains strong, with the precious metal gaining nearly 160% over the last 5 years. While further volatility is possible in the coming months, the current decline does not necessarily undermine gold’s long-term role in investment portfolios. 

Other precious metals like silver are also experiencing their own unique price movements during the ongoing geopolitical turmoil, especially the Iran war. Given that silver is also an industrial metal, firms like New Pacific Metals Corp. (NYSE American: NEWP) (TSX: NUAG) aren’t surprised when silver prices slide each time energy prices tick upwards. This is because higher energy costs dampen industrial demand for the metal. 

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