Gold price gains wiped out for the year! Institutions say medium to long-term upward support remains

Why Didn’t Rising US-Iran Tensions Boost Gold Prices Instead, They Caused a Drop?

21st Century Business Herald Reporter Tang Jing

After a sharp rise, gold prices have experienced a significant decline, with gains this year fully wiped out.

Since March, the international gold market has faced continuous heavy selling, with March 23 seeing a “free fall” scenario. Wind data shows that spot gold prices repeatedly fell below $4,500, $4,400, $4,300, $4,200, and $4,100 per ounce today. It dropped below $4,100 for the first time since November 24 of last year, with an intraday plunge of 8.7%, erasing all gains made this year. Although spot gold prices had risen nearly 30% earlier this year, since March, they have fallen over $1,000.

On the same day, domestic gold prices also declined. According to Tencent Financial Connect, the domestic spot gold price Au9999 was 923.9 yuan per gram; several jewelry brands also lowered their prices, with Chow Sang Sang 24K gold jewelry at 1,367 yuan per gram, down 5.27% intraday; Lao Miao Gold at 1,374 yuan per gram, down 4.91%; Chow Tai Fook at 1,375 yuan per gram, down 4.98%.

That morning, the Shanghai Gold Exchange issued a notice: recent factors affecting market stability have increased, leading to significant volatility in precious metal prices. Market participants are advised to closely monitor market changes, prepare detailed risk contingency plans, and maintain market stability. Investors are also reminded to manage risks prudently, control positions reasonably, and invest rationally.

Regarding the reasons for this round of gold price declines, Jin Yidan, head of the Southwest Futures Institutional Department, told reporters that as of March 20, 2026, the weighted price of WTI crude oil has risen about 33% since the outbreak of the war, intensifying global central banks’ concerns over imported inflation, prompting major countries’ central banks to adopt more hawkish stances.

Jin Yidan pointed out that the Federal Reserve’s FOMC meeting on March 18 decided to keep the federal funds rate target range unchanged at 3.5%–3.75%, but mentioned the possibility of future rate hikes. The subsequent economic forecast also confirmed this hawkish bias: inflation expectations were revised upward, while unemployment and economic growth forecasts remained almost unchanged; meanwhile, the dot plot maintained the overall expectation of one rate cut in the next two years, but with a noticeably more hawkish distribution. Subsequently, the Bank of England, European Central Bank, Swiss National Bank, and Swedish Riksbank also decided to keep current interest rates unchanged, exerting pressure on precious metal prices.

Notably, despite ongoing tensions between the US and Iran since March, gold has not exhibited its usual safe-haven “glow.” Instead, it has been constrained by a strong dollar, consolidating weakly for nearly three weeks. Recently, gold prices have started to decline, with international gold prices breaking through eight hundred-dollar levels over four days, and before press time, hovering above $4,200.

“Currently, the decline in gold prices has reached a medium-term correction level,” said Tang Linmin, senior researcher at China International Futures. He explained that escalating US-Iran tensions could lead to higher inflation expectations and a more hawkish Federal Reserve monetary policy outlook, triggering market sell-offs in gold. If the US-Iran situation does not ease or even worsens, the correction may not be over. However, if there is a significant reversal in Iran’s situation, the correction could end quickly and stabilize.

Xia Yingying, head of the Precious Metals and New Energy Research Group at Nanhua Futures, pointed out that during this Middle East escalation, gold did not rise as usual due to safe-haven sentiment. Instead, it diverged from the conflict trend, indicating a conflict between market safe-haven logic and macroeconomic pricing. There are three main reasons behind this:

First, energy shocks have altered market expectations of policy directions. Rising real interest rates have suppressed gold prices. Risks in the Strait of Hormuz pushed up oil prices, directly affecting the pace of inflation decline and cooling market expectations of Fed rate cuts this year, even raising concerns about possible rate hikes. Rising US Treasury yields and a rebound in the dollar have increased real interest rates, which, for non-yielding gold, results in valuation pressure. Even safe-haven sentiment is offset by interest rate factors.

Second, the dollar’s safe-haven status is now more prominent. The dollar is both a safe-haven asset and has liquidity advantages. The earlier low dollar index reflected valuation benefits, but as monetary policy expectations turned hawkish, the dollar rebounded, attracting safe-haven funds that might otherwise have flowed into gold, creating a “rising dollar, falling gold” scenario.

Third, liquidity management and fiscal spending needs in some countries have also triggered gold sales. For example, Russia’s central bank sold gold to cover fiscal deficits, and Poland’s central bank sold gold temporarily for defense financing. Additionally, rising oil prices have increased trade deficits and exchange rate pressures in some emerging markets, leading to financial market volatility and liquidity tightening, prompting gold liquidation to ease pressure, which conflicts with safe-haven demand.

Xia Yingying summarized that the escalation of US-Iran tensions has reactivated traditional macro factors that suppress gold through the “inflation—interest rates—liquidity” transmission chain, temporarily detaching gold from its safe-haven pricing logic.

Wang Yanqing, chief analyst of precious metals at CITIC Construction Investment Futures, explained that the main factor driving gold prices down is liquidity tightening. The escalation of US-Iran tensions has triggered a global asset sell-off, with stocks and bonds both falling sharply. In such an environment, gold is also vulnerable, similar to the situations during the 2008 financial crisis and the 2020 COVID-19 pandemic, when liquidity tightening led to declines in gold prices.

Wang Yanqing admitted that the Fed’s rate cut expectations have weakened significantly due to inflation concerns, reducing short-term support for gold prices. However, in the long term, factors such as central bank gold purchases and weakening US dollar credit still provide support. If the global asset sell-off subsides, gold could stabilize. Short-term, investors are advised to wait and see. Considering the long-term upward momentum of gold, it is better to wait for market stabilization before allocating.

According to “Economic Information Daily,” the Federal Reserve’s March monetary policy statement noted that the impact of Middle East tensions on the US economy remains uncertain, with significant economic risks ahead. Fed Chair Powell stated at the press conference that, due to the unclear scope and duration of Middle East impacts and the effect of rising oil prices on consumption, the Fed has chosen to observe.

Several interviewees told reporters that the US-Iran situation is a temporary shock to gold prices. Once Middle East tensions ease, the Fed’s monetary policy outlook may shift dovishly again, boosting gold prices.

Xia Yingying added that with the US midterm elections approaching, the likelihood of ongoing US-Iran conflict is low. This limits the potential for energy-driven inflation to turn into deep, broad inflation. Moreover, if Kevin Waugh succeeds Powell as Fed Chair, the monetary policy stance may tilt toward rate cuts. Additionally, the US labor market shows signs of further weakening, and liquidity risks in stocks and bonds are rising. The probability of the Fed returning to rate hikes this year is low. Overall, the long-term upward trend of gold remains intact, with medium-term movements depending on Fed policies.

Yuan Zheng, analyst at Galaxy Futures, told reporters that although recent gold prices have sharply corrected, the overall long-term upward logic remains unbroken. The current plunge is mainly due to short-term trading shifts. Future impacts of the Fed on gold prices will mainly depend on changes in monetary policy expectations. If Kevin Waugh takes over as Fed Chair and reduces the pace of reserve management expansion (RMP), the impact on asset prices will be limited. Coupled with ongoing support from de-dollarization and central bank gold purchases, gold prices are still expected to regain upward momentum.