Against the backdrop of escalating U.S.-Iran tensions in March 2026, which should have highlighted gold's safe-haven attributes, international spot gold experienced consecutive sharp declines, with the domestic Shanghai gold futures contract also falling sharply, nearly erasing all its gains for the year. This breaks the conventional market wisdom that "when cannons roar, gold prices soar."
What are the core reasons behind gold's sharp drop? Is there a misconception about gold's role in turbulent times? What is the outlook for gold?
The core reasons for gold's significant decline in March 2026, amid U.S.-Iran conflict, include geopolitical tensions driving inflation and monetary tightening expectations, profit-taking by investors at high levels, and liquidity panic triggered by stock market volatility leading to forced selling pressure on gold.
The notion of "gold in turbulent times" is actually a market misinterpretation. During crises, gold merely serves as a means of liquidation. Moreover, with central bank purchases driving up prices, the trading structure dominated by speculative funds has made gold increasingly resemble a risk asset.
In the short term, expectations of rising inflation and monetary tightening, geopolitical uncertainties, and mean reversion will likely keep gold under pressure. In the long run, however, the normalization of geopolitical risks, strong gold-buying interest from non-U.S. central banks, and a potential shift in the global economy from inflation to stagnation will support gold prices. This sharp decline represents a deep correction within a bull market rather than a signal of its end.
1. Why did gold fall sharply despite ongoing U.S.-Iran conflict? Amid escalating U.S.-Iran tensions and fading expectations for Federal Reserve rate cuts, global financial markets experienced significant volatility, and gold was not spared. Spot prices fell sharply, dimming its safe-haven appeal. On March 18, 2026, spot gold in London dropped 3.86% to $4,813.53 per ounce, followed by another 3.39% decline to $4,650.50 on March 19, briefly falling to around $4,500. Domestic markets mirrored this trend, with the Shanghai gold futures contract falling to 1,026.74 yuan per gram by the close on March 19, a single-day drop of 4.99%, nearly wiping out all yearly gains.
Contrary to the adage, gold prices fell instead of rising after the U.S.-Iran conflict began. Three main factors explain this: First, geopolitical tensions increased global inflation and interest rate risks, pressuring gold prices. The Iran situation, ongoing for three weeks, raised concerns about prolonged conflict, continuously pushing up oil prices. From March 1 to 19, WTI and Brent crude rose 40-50%, while Dubai spot crude surged 134%. Higher oil prices elevate global "stagflation" risks, though the impact on stagnation versus inflation varies. Currently, the focus is more on rising inflation and monetary tightening risks. The Fed's March meeting revised inflation forecasts upward but left unemployment and growth expectations largely unchanged. Chair Powell emphasized that rate cuts depend on slowing inflation, signaling a hawkish stance. Meanwhile, attention to monetary tightening risks in the eurozone and U.K. increased. CME data showed markets no longer expect Fed rate cuts in the first half of the year, with about a 10% chance of a hike; expectations for cuts later in the year also fell significantly. As a non-yielding asset, gold's opportunity cost is highly sensitive to funding costs and interest rates, making it vulnerable to rising monetary tightening expectations in the U.S. and Europe.
Second, investors took profits at high levels and exited positions. The U.S.-Iran conflict was not an unforeseen "black swan" event. Stalled negotiations and U.S. military buildup early in 2026 provided clear signals, and markets had already priced in the risks. Gold rose steadily after January 22, when Trump announced troop deployments to Iran, gaining 10.11% by March 2, when conflict erupted, approaching previous highs. Thus, after the conflict began, investors sold on the news, driving prices down.
Third, equity market impacts created a chain reaction, with leverage and liquidity panic leading to concentrated gold selling. The U.S.-Iran conflict caused global stock declines, putting highly leveraged positions at risk of margin calls or forced liquidation. For example, South Korea's stock index fell 7.2% and 12.1% on consecutive days, triggering circuit breakers. Prior to this, margin debt had reached record highs, with some investors' margin ratios as low as 30-40%. As stocks fell, these leveraged long positions faced massive liquidation pressure, forcing investors to raise cash quickly. Gold, with its substantial unrealized gains, became a prime source of liquidity. This passive selling to meet margin requirements caused gold to fall alongside risk assets, showing short-term positive correlation.
2. Why has "gold in turbulent times" failed? First, the concept itself is a market misinterpretation. In true crises, gold is merely a liquidation tool. During real wars or financial crises, liquidity crunches cause sharp asset price swings, with only cash (especially U.S. dollars) remaining stable and safe. In the 2008 financial crisis and early 2020 pandemic, gold was sold off alongside risk assets like stocks. After Lehman Brothers collapsed in September 2008, leveraged funds sold gold for cash, driving prices from around $900 to a low of $682.41, a drop exceeding 20%. Gold only rebounded after the Fed began quantitative easing. Similarly, in 2020, COVID-19 triggered a recession, with global stocks, U.S. bonds, and gold all falling sharply in March; gold dropped from $1,700 to around $1,400, while the dollar index rose from 95 to 103.
The current U.S.-Iran conflict shows similar traits—gold weakening as the dollar strengthens temporarily. From February 27 (pre-conflict) to March 18, the dollar index rose 2.57%, while spot gold fell 7.10%, and futures dropped over 11%, showing clear negative correlation.
Second, current pricing logic makes gold more akin to a "risk asset." Central bank gold purchases accelerated from 2022, becoming a key price driver. From 2010-2021, global central banks bought an average of 473.3 tons annually, about 10.8% of total demand. From 2022-2025, annual purchases jumped to over 1,000 tons, exceeding 20% of demand, marking the longest and strongest buying spree in history. Buyers expanded beyond China, Russia, India, and Turkey to include Poland, Brazil, Azerbaijan, and the Czech Republic. Central banks are motivated by three factors: hedging currency depreciation risks (gold's supply constraints and inflation-hedging attributes make it a strategic tool against currency devaluation), mitigating sovereign debt risks (with U.S. debt exceeding $38 trillion and debt-to-GDP over 120%, gold offers zero credit risk), and avoiding geopolitical risks (dollar weaponization prompts reassessment of reserve safety, making gold a path to financial autonomy and sanction avoidance).
Moreover, central bank buying has not crowded out private investment but boosted it, akin to "big players lifting the sedan chair for small followers" in stock markets. This occurs via two channels: demand and price support (large-scale buying creates a price floor, reducing downside risk and attracting speculative funds) and signaling effects (continued purchases signal concerns about dollar credit and debt risks, reinforcing gold's long-term value and prompting private portfolio adjustments).
However, rising private demand is driven largely by speculative funds, worsening gold's trading structure with crowded long positions. Since late 2024, speculative inflows have pushed COMEX gold non-commercial net longs to high levels. When expectations shift or liquidity tightens, crowded longs can trigger stampede-like selling, amplifying corrections—a behavior increasingly similar to risk assets like stocks. Thus, under current pricing logic, gold is behaving more like a risk asset, with pricing power shifting from strategic central banks to tactical speculative funds.
3. What is the outlook for gold? Short-term, gold may face volatile pressure; expect higher volatility and lower returns. Markets will remain focused on inflation and global tightening risks, keeping gold under pressure. Recall the Russia-Ukraine conflict in February 2022, which also drove oil prices higher,加剧全球通胀压力, and prompted aggressive Fed and ECB rate hikes. Gold peaked in March 2022 then fell for about eight months, losing over 20%. It only rebounded when inflation eased, and focus shifted from tightening to easing as stagnation risks emerged.
Prolonged geopolitical conflict and high global避险需求 could affect gold as a new "risk asset." If U.S.-Iran tensions persist for a month or more, exceeding Middle East oil producers' storage limits, impacts may spread regionally, creating uncertainty in energy, policy responses, and conflict escalation. Geopolitical risks could still cause periodic liquidity shocks and speculative outflows, and gold's strengthened correlation with risk assets makes it susceptible.
Historically, gold's most rapid gains may be over, raising trading difficulty. Gold's average annual returns over 10, 20, and 30 years are 8.3%, 9.4%, and 6.6%, roughly 7-9%. But returns for 2023, 2024, and 2025 were 13.16%, 27.23%, and 59.95%. Mean reversion in 2026 is more likely than further breakthroughs.
Long-term, supportive factors remain; the current plunge is a deep correction in a bull market, not its end. Geopolitical risks are normalizing, with Trump's policies increasing conflict frequency and chain reactions, continuously undermining dollar credibility. First, business-style diplomacy erodes trust with allies. Trump treats alliances as renegotiable contracts, pushing Europe toward strategic autonomy. The EU is accelerating eurobond expansion and capital market integration to enhance the euro's role and reduce dollar reliance. Second, militarization raises conflict frequency. Trump's second-term airstrikes overseas exceeded Biden's four-year total in his first year, making conflicts常态化的. Third,复合型 pressure tactics spread single issues across domains. The U.S.-Iran conflict evolved from nuclear talks to a multi-area crisis covering military, energy, and diplomacy.
Non-U.S. central banks' strong buying interest should continue lifting gold's price floor. Amid geopolitical normalization, gold accumulation is key for sanction risk mitigation and financial security. Emerging market central banks are particularly active, with ample room for reserve growth. For example, China and India hold over 800 tons of gold, but it constitutes less than 20% of reserves, far below Germany and France's over 80%.
If global economic risks shift from inflation to stagnation, gold could find support. High energy prices erode consumer purchasing power and may force monetary tightening that suppresses demand and curbs inflation, potentially leading to economic decline or recession. In stagnation, gold's strategic value shines. Historically, during recessions, stocks face earnings and valuation pressure, while gold offers relative outperformance. Economic downturns also pressure central banks to ease policy. If the Fed adjusts its stance due to employment or recession risks, real rates could fall, lowering gold's opportunity cost and supporting prices.
Risks include geopolitical and oil price surprises,超预期 global monetary tightening, weaker Fed independence, and heightened financial market volatility.