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Gold Prices Defy War: Why Isn't Gold Soaring?
17 Mar
Summary
- US gold futures dropped over 4% in March.
- Higher crude oil prices strengthened the dollar, limiting gold.
- Traders favored crude oil as a higher-beta trade during conflict.
US gold futures experienced a significant drop of over 4% in March, defying expectations amid heightened geopolitical risks, including a US-Iran conflict. Domestically, spot gold prices have decreased by more than ₹3,000 per 10 grams this month. This performance contrasts with gold's substantial 70% returns in 2025, driven then by factors like central bank buying and anticipated Fed rate cuts.
The current decline is attributed to a strengthening US dollar, fueled by a sharp surge in crude oil prices. Investors have shifted towards crude oil as a more attractive, higher-beta trade, benefiting directly from the conflict. This has increased global demand for dollars, consequently limiting gold's upside potential.
Further contributing to gold's muted performance are factors such as profit-taking after a strong previous rally, reduced ETF holdings, and a nearly 25% fall in central bank purchases in late 2025. Some central banks even became temporary sellers, and many investors opted to hold cash amid uncertainty.
Analysts suggest that broader macroeconomic trends, rather than geopolitical risks, are dictating gold's sentiment. While structural drivers like central bank purchases and rising global debt persist, the outlook for US interest rates remains a critical counterweight. Fading expectations of Fed rate cuts have capped gold's gains, and any further inflation from energy disruptions could delay or eliminate planned rate cuts, impacting gold prices.
