When an asset ceases to function as it should, a specific type of disorientation occurs. Gold has been known for decades as the material to turn to in the event of a global emergency. The script is as follows: gold rises, markets panic, and war breaks out. However, as the Iranian conflict developed this year, the script was abandoned sometime in February, and it’s unclear why investors weren’t alerted sooner.
On their own, the numbers reveal an odd tale. Given where it began a year earlier, the price of gold reached almost $5,600 per ounce in late January, which felt almost theatrical. The main driver at the time was fear: mistrust of paper money, anxiety over the Strait of Hormuz, and other typical components of a gold rally. Then came the real war. American facilities in Bahrain and Kuwait were hit by missiles. Once more, shipping lanes were disrupted. Additionally, gold declined rather than rising as textbooks predict. difficult. Over 20% below its highest point.
That’s counterintuitive in a significant way, so it’s worth pondering for a moment. The conventional wisdom—flight to quality, haven, storm shelter—assumes that investors purchase gold because they are afraid of war. However, this war took a different approach. As a result, markets were forced to begin pricing in higher U.S. interest rates as oil prices increased and inflation expectations were heightened. Additionally, higher rates significantly reduce the appeal of gold, a non-yielding asset. Instead of investor panic, the war reached gold through monetary policy and the Federal Reserve.
This year, commodity analysts have been debating the “rate channel” versus the “safe-haven channel.” It may sound a bit dry and technical, but it accurately depicts how the gold market in 2026 operates. The financial system itself used to be the source of geopolitical shocks, such as a bank failure or a credit downgrade. This external shock, an energy disruption, directly contributed to inflation expectations. It turns out that inflation expectations—rather than news reports about missile strikes—are now gold’s true master.
It’s also noteworthy who was selling. Retail panic was not the cause. In March, central banks stopped purchasing gold; in a single month, Turkey’s central bank sold 52 tons of gold. Approximately 90 of the 150 tons that ETFs had amassed earlier in the year were liquidated. These investors weren’t losing faith in the idea of gold. They clearly and urgently needed money, and gold was liquid enough to be sold.
Early indicators of stabilization include the dollar weakening at the margins, China covertly rebuilding reserves, and ETFs repurchasing about half of what they sold. If the Fed eventually lowers rates as anticipated, Morgan Stanley predicts a rise back toward $5,200 later this year. However, the resolution of the war itself is not necessary for that recovery; rather, monetary policy cooperation is.
The irony that lies beneath all of this is difficult to ignore. The whole mythology surrounding gold was based on the idea that it is an asset that only cares about fear. This year demonstrated how much it cares about interest rates—possibly more than it has ever cared about war. It’s genuinely unclear whether that’s a long-term change or just one odd cycle, and anyone who claims to know for sure hasn’t been paying enough attention.
