After gold prices were reaching record highs, wealth managers discuss the recent drop in the precious metal, and how the Middle East conflict is affecting it.

Gold has fallen 2 per cent as an escalating US-Israel war with Iran has caused oil prices to surge and squeezed world energy supplies, boosted the dollar and dampened hopes of interest-rate cuts. The price shift in the yellow metal shows this most famous of safe-haven assets does not always rise when tensions mount.

Market volatility remains elevated as markets digest the US-Israel conflict with Iran, now entering its third week. Energy markets remain the key transmission channel into broader financial markets: Brent crude is still trading around $100, levels that keep inflation concerns alive and complicate expectations for interest-rate cuts. Precious metals dipped Thursday, with gold once again failing to sustain the price action above the $5,200 level and falling below $5,100.

“As the war in the Middle East develops, I suspect the gold market will continue to fluctuate. At the beginning, we saw gold prices shoot upwards undoubtedly as investors panicked to seek stability, but more recently, we have seen a drop,” Rick Kanda, managing director at The Gold Bullion Company said in a note. “The strength of the US dollar, oil price movements, and interest rate expectations are key influences on the gold price, and each of these could weigh on prices in the near term.”

“However, as missile strikes will continue for some time, we could see tensions spread further across the Middle East, creating a sustained demand for gold as investors seek to protect their wealth,” Kanda continued. “With oil prices elevated, there are growing concerns that inflation could prove stickier than expected. That would make it harder for central banks to cut interest rates, which in turn tends to support the US dollar and weigh on gold.”

“For now, the stronger dollar and elevated oil prices are creating some headwinds for gold, even as prices remain near record highs. How long those pressures persist will depend largely on the trajectory of the conflict and its knock-on effects on inflation and interest rate expectations," Kanda said.

Saxo – now part of Bank J Safra Sarasin – indicated that the question may arise at some point whether countries desperate for oil supplies could use central bank resources, including gold sales, to fund purchases.

Meanwhile, Carsten Menke, head of next generation research at Swiss private bank Julius Baer, highlighted how with the war in the Middle East raging on and the energy-related risks rising, the gold and silver markets remain remarkably calm. “Since the start of the war, when gold and silver prices saw a short-term spike, they are now down 3.5 per cent and 11 per cent, respectively,” Menke said. “The gold and silver markets seem to be following the established geopolitics playbook, whereby an escalation in the Middle East provides a short-term spike to prices but typically no longer-lasting upside. That said, this is under the condition that the conflict has no tangible impact on the global economy and/or financial markets,” he continued.

“While we still stick to our swift and intense base case scenario that should leave the global economy very much unscathed, energy and equity markets are reflecting greater risks than the precious metal markets at the moment,” Menke said. “The rebound of the US dollar and the rise in US bond yields do not help the metals, particularly since their previous surge was very much built on the narrative of the dollar debasement trade. Those who expected precious metals to benefit from a debasement of the dollar were caught on the wrong foot since the start of the war. Even more remarkable is the absence of safe-haven seekers in the physical markets,” he continued.

“Physically backed gold products, our preferred gauge of safe-haven demand, have recorded outflows for most of March. Only during the past two days was there any buying. Should the war drag on, we would expect buying to pick up, providing support for prices,” Menke said.

“While we do not see much upside for gold in the swift and intense scenario, it should benefit from a potential worsening of the situation as reflected in our enduring and chaotic and oil crisis scenarios. Meanwhile, physically backed silver products continued to record outflows since the start of the war. Seen in conjunction with the decline in prices, this again underpins our view that silver does not possess the same safe-haven characteristics as gold,” Menke said. “The silver market is much smaller than the gold market, it caters much more to speculators than the gold market, and it has a large share of industrial applications.”

UBS Global Wealth Management highlighted this week how gold’s track record throughout military conflicts shows mixed performance. However, given the macroeconomic and political uncertainties beyond the risks arising from the Iran war, Wayne Gordon, strategist, and Dominic Schnider, head global FX & commodity, UBS Global Wealth Management, maintain an attractive rating for the metal and remain long gold in our global asset allocation.

“For investors with an affinity for gold, we believe a modest allocation in the mid-single digits of total assets can enhance diversification and buffer against macro-related risks,” they said. They believe growing US debt and weakening confidence in Treasuries, combined with geopolitical tensions and de-dollarization trends, are likely to push gold prices to $5,900-6,200/oz over 2026.