Gold defied its traditional role as a crisis hedge in March, posting its steepest monthly fall since October 2008. The metal dropped more than 14% over the month - its sharpest decline in over 17 years - despite heightened geopolitical tensions in the Middle East, prompting questions about whether gold’s safe-haven function is weakening or being reshaped by shifts in investor behavior and monetary policy.
The sell-off coincided with a roughly 2% rise in the US dollar since the outbreak of conflict involving the United States, Israel and Iran in late February.
Fahd Iqbal, head of investment services at Union Bancaire Privée (UBP), pointed to two main factors that drove the decline. Investors often liquidate top-performing assets during periods of stress to cover losses or meet margin calls, he told Asharq Al-Awsat, noting gold had been among the strongest performers over the past two years. Similar dynamics were seen during crises in 2008 and 2020.
Rising energy costs also lifted inflation expectations and led markets to price in potential interest rate hikes, putting pressure on non-yielding assets such as gold, Iqbal added.
Mohammed Farraj, senior head of asset management at Arbah Capital, cited a surge in US Treasury yields as another key factor, offering investors a more attractive alternative.
Expectations of tighter Federal Reserve policy have boosted the dollar, making gold costlier for non-dollar holders and encouraging profit-taking after earlier gains, he said.
In remarks to Asharq Al-Awsat, Farraj described the drop as a “healthy and natural correction,” noting that declines of 10 to 20% are typical in rebalancing supply and demand after strong rallies.
Markets also appeared less sensitive to geopolitical tensions than usual. Neal Keane, Head of Global Sales Trading at ADSS, said investors have become less reactive to political rhetoric, though geopolitical risks remain central.
Any diplomatic breakthrough could still trigger sharp cross-asset moves, he added.
Views diverged on the nature of the drop. Al-Farraj said a routine correction, while Keane argued it may reflect a broader “inflation shock” alongside pressure on global equities.
Iqbal, for his part, said the decline is driven by liquidity needs rather than a structural shift, maintaining a positive long-term outlook.
Most analysts agree gold has not lost its core role but has become more sensitive to monetary policy and investor positioning.
Keane said the metal has at times behaved more like a risk asset, reflecting strong recent gains and increased speculative activity.
Iqbal noted that gold remains attractive in stagflationary or slowing economic environments, conditions that persist globally.
