Risk-off trade keeps gold volatile as Iran war spooks investors

By Polina Devitt

LONDON, March 23 (Reuters) – Acute volatility in gold prices is set to persist in the short term as investors cut risk, with the Iran war boosting inflation fears, curbing bets on interest rate cuts, and weighing on the outlook for global growth, analysts said.

However, in the long term its role as a store of wealth will reassert itself, they said.

With the Iran conflict entering its fourth week, spot gold is down 15% since hostilities began on February 28, and 22% below its January record high.

Gold is used as a hedge against inflation, but an increase in bets on rates staying higher for longer in the short- to medium-term due to the energy price jump is a headwind for bullion as an asset which pays no interest.

“Gold should do well in a stagflationary environment, it always has, but there may be more profit taking and liquidation first,” said John Reade, senior market strategist at the World Gold Council.

“2025’s trades are being unwound, and we are yet to see 2026 stagflationary trades.”

LIQUIDITY NEEDS OUTWEIGH SAFE-HAVEN DEMAND

Gold’s one-day jump at the start of the Iran war followed by a period of falls is consistent with previous episodes of extreme shocks, where liquidity needs outweigh safe-haven demand in the early stages, analysts at ANZ said.

When Russia invaded Ukraine in February 2022, gold prices rose initially but then fell back as the inflation shock fed through to rates. 

Gold’s price rally from $1,650 per ounce in November 2022 to a record $5,595 in January 2026 was driven by demand from central banks and institutional investors, before a wave of speculative retail demand, particularly in Asia, became a feature of the market.

“The bigger picture remains intact: ballooning G7 budget deficits, sticky inflation and central bank foreign reserve diversification amid sustained deglobalisation,” said SP Angel analyst John Meyer.

GOLD-BACKED ETFS HAVE SEEN OUTFLOWS

Gold touched a four-month low of $4,098 in early hours on Monday as stock markets in China – the world’s leading buyer of gold – tumbled by the most in a year.

Spot gold prices were last down 2.5% at $4,377 an ounce, having trimmed losses after U.S. President Donald Trump said he would delay any strikes on Iran’s energy infrastructure. [GOL/]

On the global demand side, gold-backed exchange-traded funds have seen outflows of $7.9 billion, or 54.8 metric tons, mainly in the U.S., to 4,117.9 tons since the conflict in the Middle East started, according to the WGC data. 

(Reporting by Polina Devitt; Editing by Jan Harvey)