Gold has long been regarded as a safe haven during times of crisis. Yet, despite escalating conflict in the Middle East and growing global economic uncertainty, the precious metal has come under significant pressure, erasing almost all of its 2026 gains after earlier reaching record highs.
According to AFP, several factors have combined to drive gold lower, even as geopolitical risks continue to intensify.
Investors Rush for Liquidity
One of the main reasons behind gold’s decline is the urgent need for liquidity. As conflict in the Middle East deepens, investors have been selling a wide range of assets to raise cash and offset losses in other parts of their portfolios.
Gold, after a strong rally over the past year, has become one of the first assets to be liquidated.
Joshua Mahony, Chief Market Analyst at Scope Markets, noted that investors have turned to gold and silver sales largely because of the scale of the gains already seen in both metals over the past year. By selling precious metals, investors are able to access US dollars quickly — a critical move at a time when oil and other energy products are traded in the US currency.
This comes as oil prices have surged following the closure of the Strait of Hormuz and strikes on Gulf energy infrastructure, adding further pressure to already volatile markets.
Gold is now trading at around $4,550 an ounce, after climbing above $5,500 earlier this year amid intensifying geopolitical stress, including US tariff concerns and ongoing conflicts in Ukraine and Gaza. Silver, meanwhile, is trading near $73 an ounce, having peaked above $120 just two months ago.
Rising Rate Expectations Add Pressure
Another major factor weighing on gold is the growing expectation that central banks, particularly the US Federal Reserve, may raise interest rates in response to inflationary pressures caused by soaring energy prices.
Higher interest rates tend to strengthen the appeal of the US dollar and government bonds, both of which offer returns that gold does not.
“Gold has no yield and is less attractive in an environment where cash might soon offer higher returns,” said Russ Mold, an analyst at AJ Bell.
Silver has also been hit by concerns over a broader global growth slowdown. Unlike gold, silver has substantial industrial use in sectors such as solar panels, electronics, jewellery, and data centres linked to artificial intelligence. Any weakening in industrial demand can therefore have a sharper impact on silver prices.
Disruptions in Physical Supply Chains
The war has also disrupted the physical trade of gold and silver, particularly through Dubai, one of the world’s most important hubs for precious metal flows.
The World Gold Council told AFP that air transport of gold and silver to and from Dubai has been affected, disrupting a market that handles around 20 percent of global metal flows, especially into India.
Stephen Innes, an analyst at SPI Asset Management, said the physical market has effectively been “temporarily short-circuited.”
He explained that the usual movement of gold from London into Asia has hit a bottleneck, with key transit hubs disrupted and regional buyers temporarily sidelined.
That matters because the Middle East accounted for nearly 10 percent of global private demand for gold last year. Individuals across the region purchased around 270 tonnes in jewellery, bars, and coins — more than buyers in either the United States or Europe, based on AFP calculations using World Gold Council data.
Even if that demand has only been postponed rather than lost, analysts say prices often adjust downward in the short term when market flows are disrupted.
Safe Haven Status Tested
Gold had already come under pressure earlier in the year as investors took profits in January, briefly weighing on both gold and silver. Now, a second sharp sell-off within a matter of months is raising questions about the metal’s traditional safe haven role.
Hamad Hussain, economist at Capital Economics, said that another major drop in prices in such a short period arguably weakens gold’s image as a dependable refuge during times of crisis.
A Market in Transition
While gold remains one of the world’s most closely watched defensive assets, current market behaviour shows that in moments of intense uncertainty, investors may prioritise immediate access to cash over long-term safety.
With oil surging, inflation risks rising, supply routes disrupted, and central banks expected to act more aggressively, gold is facing an unusual environment — one in which even safe haven assets are not immune to sharp corrections.
