A full-scale war, increased geopolitical risks, sticky inflation, and faltering economic growth—each of these factors is a major driver of gold prices. Together, they can potentially send the yellow metal soaring. Yet, even a confluence of these factors has failed to trigger a sharp upside in gold prices. In fact, the metal is undergoing a correction despite the presence of all these factors simultaneously.
US Gold Futures have shed more than 4% in March so far, as the combined forces of the U.S. and Israel are at war with Iran, with the latter also strongly retaliating. Domestic spot gold prices, as per the MCX data, have declined by more than ₹3,000, or 2%, per 10 grams this month.
Why is gold rate not rising?
“Trees don’t grow to the sky”- the proverb aptly explains why gold is not rising at this juncture.
The yellow metal delivered dazzling returns of more than 70% in 2025, strongly outperforming various other asset classes, including equities, fixed income, and real estate.
Concerns over the economic impact of US tariffs, aggressive central bank buying, strong demand from retail investors, and expectations of US Fed rate cuts were the main drivers behind the rise in gold prices last year.
While several of these factors still persist, the yellow metal is witnessing demand fatigue amid the dollar’s rise due to a sharp jump in crude oil prices, and fading expectations of rate cuts by the US Federal Reserve this year.
“Gold is losing some of its safe‑haven shine because financial and macroeconomic pressures are overpowering geopolitical demand. The combination of a strong dollar, higher yields, flight-to-liquidity, profit booking, inflation fears, and uncertainty around the war’s impact has capped gold’s upside despite escalating tensions in West Asia,” Hareesh V, the head of commodity research at Geojit Investments, observed.
Vandana Bharti, the head of commodity research at SMC Global Securities, pointed out that one key reason why gold is not rising is that traders shifted toward higher-beta trades such as crude oil, which became the primary beneficiary of the conflict.
“Crude prices surged 40–50%, increasing global demand for the U.S. dollar since oil imports are largely settled in dollars, thereby strengthening the dollar index and limiting gold’s upside,” Bharti explained.
Bharti further highlighted that gold had already experienced a strong rally earlier, prompting profit-booking by investors. Exchange-traded funds also reduced their gold weightings, while central bank purchases fell by nearly 25% in the last quarter of 2025.
Higher trading margins and liquidation pressure further weighed on prices.
Some central banks even turned temporary sellers. Meanwhile, many investors preferred holding cash during uncertainty.
According to Manav Modi, previous metals analyst for commodities at Motilal Oswal Financial Services, gold’s muted reaction despite geopolitical tensions and inflation risks reflects two opposing forces currently influencing the market.
Modi explained that on one hand, structural drivers such as sustained central bank purchases, resilient physical demand, rising global debt concerns, ETF participation, and geopolitical risks have already built a significant risk premium into gold prices in 2025. On the other hand, interest rate outlook remains a critical counterweight.
“Markets had earlier priced in at least two rate cuts in 2026, which supported gold’s rally, but the escalation involving the US and Iran raises risks of higher oil prices due to supply sensitivities around the Strait of Hormuz. If inflation rises further due to energy and supply disruptions, expectations of rate cuts could weaken or even shift toward a prolonged pause, capping gold’s upside,” Modi said.
Can an end to the US-Iran war trigger a further correction?
Gold didn’t rally during the West Asia conflict, so an end to the war is unlikely to spark a major correction.
“Market behaviour shows that geopolitics played little role in recent price moves, with broader macro trends continuing to dictate sentiment rather than any perceived war premium,” said Hareesh.
“Once geopolitical tensions ease, gold prices are likely to realign with their long-term fundamentals. Interestingly, in this phase, crude oil—not gold—has acted as the dominant safe-haven trade,” said Bharti.
According to Modi, if tensions ease or the US-Iran conflict ends quickly, some safe-haven premium could unwind, leading to short-term correction or consolidation rather than a sharp decline.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
