Most investors have been left flabbergasted by the movement in gold prices this week. Despite the breakout of war in Iran by the US-Israel forces, gold prices are down. Yes, you read it right. On Friday, February 27, a day before the war started, gold was at $5,244, and on March 6, gold traded around $5,120.
However, the lack of interest in gold was evident even before the war started. After clocking 65% in 2025, gold entered 2026 with a bang, gaining over 20% so far in 2026. However, since reaching an all-time high of $5,418 on January 28, the price has drifted lower and has been trading within a narrow range. That’s what the market calls a ‘consolidation phase’.
Even the missile action in the Middle East failed to revive the momentum. On Tuesday, the fourth day of the war, there was a major reversal, with gold suddenly falling 4% and silver dropping as much as 10%.
So, what seems to be holding gold back? After all, gold is considered to be the asset that shines during global uncertainties.
Two major factors may have dampened demand for gold despite the Middle East war.
One, the sudden strengthening of the dollar; second, the need to be in cash, with investors seeking liquidity.
Incidentally, Brent oil is up over 20% since the Middle East war began. A spike in dollar-denominated oil and gas prices may have increased demand for liquidity in dollars.
Gold prices increased following the release of weak jobs data on Friday; however, they are struggling to maintain a safe-haven appeal amid ongoing turmoil in the Middle East.
King Dollar Returns — and Gold Feels the Weight
The US Dollar is an important underlying factor driving gold prices. The US Dollar index, which measures the performance of the dollar against a basket of other currencies, has started showing strength.
The US dollar is in direct competition with the safe-haven asset, making dollar‑priced bullion less affordable for holders of other currencies. They have an inverse relationship, which means that when the dollar index strengthens, the price of gold tends to fall, and vice versa.
Here’s how the index has shown strength, in numbers. From a high of 102 in January 2025, the US dollar index slipped to under 100, touching a low of 96.70 in June 2025. At one point, it was down over 12% YoY.
Since then, the Dollar Index has remained in a tight range, showing upward drift. In the last 30 days, the US dollar index has strengthened significantly by nearly 1.46%, and in the last 5 days, since the Middle East war began, the US dollar index has gained 1.49%.
IMF First Deputy Managing Director Dan Katz sums up, “The dollar’s behaviour this week shows its role as a haven persists and the U.S. currency remains the ‘heart of the international monetary system.”
Less Noise, More Signal: Gold’s Next Move Is Structural
All said and done, gold refused to budge despite rising geopolitical tensions. The emerging consensus among most analysts suggests that the price action of precious metals indicates a need for further consolidation, as other safe-haven assets are currently undervalued.
Gold has been testing its ‘resistance’ and ‘support’ levels for some time now. Michele Schneider, Chief Market Strategist at MarketGauge, said in an interview with Kitco News, “the market’s next decisive move will likely depend less on short-term geopolitical headlines and more on structural shifts in financial markets.”
Higher for Longer — Gold’s Uncomfortable Truth
Meanwhile, capital also seems to be moving into US Treasuries. A prolonged war could leave a huge impact on the government’s finances worldwide, leading to money moving into ‘risk-free’ assets like US Treasuries. When investors sell bonds, yields move higher.
The other big factor influencing gold remains the US Fed monetary policy. Before the war, markets expected at least two rate cuts in 2026, which would have supported gold prices. The scenario has changed now. With oil prices moving higher, there’s a risk of inflation spiking again, which the US Fed can’t ignore. With rates remaining higher for longer, gold prices will remain under pressure.
Are central banks still buying gold?
A lot depends on central banks who have been the biggest buyers of gold in the last 3 years. They seem to have applied the brakes, at least for now.
According to the World Gold Council (WGC), the total gold demand in 2025, including OTC, exceeded 5,000 tonnes for the first time. However, that’s not the story for the central bank’s love for gold so far in 2026.
WGC data shows that compared to a monthly average of 27 tonnes in 2025, central banks bought only net 5 tonnes in January 2026, as momentum eased at the start of 2026. However, Malaysia and Korea emerged as significant buyers in the gold market in January, indicating a broadening demand for gold. The Czech Republic, Indonesia, China, and Serbia were other top buyers in January.
Plan, Don’t Predict: Gold’s Role in a Volatile World
De-dollarization may be put back in the freezer if oil prices continue to rise and the dollar regains its lost glory. And that means a setback for the gold investors.
Gold may yet rise for other reasons. As they say, ‘nobody knows anything beyond a point’. With new frontiers opening up so frequently in the geo-political arena, who knows what the new triggers could be for gold to rise from the slumber?
The outcome of the Middle East war remains uncertain, leaving many questions unanswered. Rather than making decisions based on predictions, carve a plan to stick to. WGC, in its recent report, says, “In 2026, strong gold ETF inflows and robust demand for bars and coins are anticipated, supported by ongoing geopolitical tensions and sustained central bank purchases.”
New investors can consider taking an exposure in gold. Even Sebi has recently introduced Life Cycle or Target Date funds for retail investors in India, mandating an exposure to gold. Existing investors may consider the present opportunity to add or lessen gold exposure to 10% of their investment portfolio for long-term goals.
