When the world faces geopolitical or economic uncertainty, gold (XAUUSD) is usually the first thing that comes to mind, as tangible assets should, in theory, provide a greater sense of protection.
But as usual, reality is not that straightforward. For example, since February 28, when Israel and the United States began strikes against Iran, gold has lost more than 24%, while silver is down more than 38%.
Why?
It is not because investors found better alternatives, as Bitcoin prices, for instance, gained just 0.7% over the same period, but rather because money shifted into energy assets, including oil. Why hide in a safe haven when you can profit from the situation?
Second, a conflict with Iran raised inflation and, with it, the chances of tighter monetary policy by central banks, including the Fed. Hence, markets now see only a 3.8% chance of rates falling to 325–350 basis points by the end of next year, while the odds of rates staying at 400–425 stand at 28.7%.
Gold’s weakness in a higher-rate environment comes from the fact that it pays no interest or dividends, meaning investors face a higher opportunity cost when safer assets like government bonds offer better returns. Why buy gold when bonds generate income, and the U.S. economy remains strong?
Finally, despite all the geopolitical risks, there is still no sign of panic in markets. The AI rally continues, even as chipmakers have recently come under pressure over concerns about a potential oversupply next year.
So, if the Middle East conflict continues or spreads, with Yemen’s Houthis attempting to disrupt the Bab el-Mandeb Strait, gold could come under more pressure rather than benefit.
On the other hand, if geopolitical tensions ease and inflation risks fade, gold could regain momentum. Longer term, current geopolitical developments are likely to keep pushing central banks away from dollar assets and toward gold.
As for what happens if a broad market panic returns, it would not necessarily be enough to support gold, since in a short squeeze, investors often sell whatever they can, including safe-haven assets. What would matter more is central banks returning to gold purchases as they move away from dollar-denominated assets.
To sum up, gold’s outlook remains uncertain, with ING analysts expecting prices to average $4,100 in the third quarter and $4,150 in the fourth quarter amid ongoing geopolitical risks and the possibility of a more hawkish Fed.