Gold prices have declined following the outbreak of the US-Iran conflict, which can be analyzed from four perspectives. Historical patterns indicate that gold prices generally perform weakly after geopolitical conflicts, with declines being common. Price increases are more likely to occur before conflicts erupt. The hedging effect of gold against US equities is weaker than commonly perceived. In recent years, gold has shown a high positive correlation with US stocks, meaning holding gold may not offer protection during current US market declines. In the short term, a rising US dollar index and US Treasury yields are exerting downward pressure on gold prices. Gold experienced a sharp rally early in the year, with volatility reaching historically high levels, leading to cautious market sentiment in the near term. Three factors should be monitored for a potential shift in gold prices: (1) historical data suggests a possible further 5% decline based on patterns after the Iran-Iraq War; (2) stabilization in US equities, which may require a de-escalation of the conflict; and (3) a return of volatility to normal levels. Key points are outlined below:

On March 19, gold prices fell over 5%, dropping below $4,600 per ounce, continuing a weakening trend since the US-Iran conflict began. Although gold has been one of the top-performing assets over the past year and is widely regarded as a safe-haven asset amid global restructuring, its price has declined more than 10% since the conflict started. How can this recent weakness be understood?

First, historical experience shows that gold prices tend to weaken after geopolitical conflicts, with declines being more common than increases. Price rises are more frequent in the month preceding a conflict, averaging nearly 4%. However, in the three months following a conflict, gold performance varies widely, often turning negative within the first month. Analysis of past Middle East-related conflicts, such as the Iraq War, Gulf War, Iran-Iraq War, and Russia-Ukraine War, indicates that gold prices are more likely to fall after conflicts begin. For example, gold dropped 15% after the Iran-Iraq War. This may be due to a sharp decline in risk appetite and potential liquidity shocks post-conflict, leading to gold sell-offs, or because price increases have already been priced in before the conflict.

Second, gold's hedging effect against US equities is not as strong as assumed. In recent years, gold has exhibited a high positive correlation with US stocks, particularly in 2025, where correlation approached 1. This means gold may not serve as a hedge during significant US equity downturns. The pressure on US and global stocks following the US-Iran conflict may be one reason gold has not rallied. From a liquidity perspective, gold may be sold to raise cash during equity declines.

Third, short-term increases in the US dollar index and US Treasury yields are putting some pressure on gold prices. While traditional dollar and interest rate frameworks have not fully explained gold trends in recent years, they can still impact prices in specific short-term windows. Recent dollar strength and high Treasury yields are traditionally negative for gold.

Fourth, gold's sharp rally early in the year drove volatility to historical highs, leading to cautious market sentiment. Although volatility has since moderated, it remains above year-end levels, indicating ongoing divergence in market views. In a conflict-driven, low-risk-appetite environment, investors may remain hesitant toward gold.

Looking ahead, while the long-term narrative for gold remains intact and medium-term sentiment leans bullish, short-term caution is advised. Potential re-entry points may be guided by three factors: a possible 5% further decline based on historical extremes post-Iran-Iraq War; stabilization in US equities, likely contingent on conflict de-escalation; and a normalization of volatility levels.