Why Gold Prices Fall During the Iran War? Analyst Explanation

Global gold prices have weakened since the Iran war started on 28 February 2026. This situation is unusual because gold is traditionally known as a safe-haven asset that investors flock to during periods of heightened global uncertainty.

Quoted from Forbes on Monday (11/5/2026), gold prices have fallen by approximately 11 per cent since the conflict began. This decline raises questions about gold’s reputation as a value-protecting asset amid geopolitical turmoil.

However, analysts assess that the drop in gold prices does not signal a loss of investor trust in the precious metal.

LPL Financial’s Head of Macro Strategy, Kristian Kerr, explained that gold serves not only as a hedging asset but also as a commodity, a foreign exchange reserve, and a source of liquidity when economic pressures intensify.

According to Kerr, several countries in the Persian Gulf, particularly the United Arab Emirates (UAE), are now facing US dollar funding pressures following disruptions in the Strait of Hormuz that have hampered oil exports and tanker traffic.

Oil exports are the primary source of US dollar inflows to the region. When exports are disrupted, the supply of US dollars diminishes, while governments still require cash to meet various payment obligations.

Turkey serves as one example.

After its lira currency came under pressure due to energy shocks, the country’s central bank sold and swapped gold reserves worth 3 billion US dollars in just one week in March 2026 to maintain domestic market stability.

This phenomenon is seen to explain why gold prices are weakening amid escalating geopolitical tensions.

In normal conditions, global uncertainty typically drives investors to buy gold. However, when governments and central banks need liquidity, gold becomes an asset that is sold to obtain cash.

Countries heavily impacted by major energy disruptions generally prioritise restoring fuel supplies, stabilising budgets, and rebuilding foreign exchange reserves after the crisis subsides.

All these steps require substantial amounts of US dollars.

Nevertheless, the decline in gold prices does not mean that investors have lost confidence in the safe-haven asset.