The Gold Conundrum: Why Geopolitical Conflict is Failing to Propel Prices

Despite Middle East tensions, gold faces pressure from a hawkish Fed, a strong dollar, and massive ETF selling, though central bank buying provides support.

Gold is often viewed as a haven asset during times of geopolitical strife. Yet, despite heightened tensions in the Middle East, the precious metal's performance tells a different story. Currently trading approximately 19% below its January peak of $5,450, gold is experiencing significant headwinds. This pressure is underscored by substantial outflows from the world's largest gold-backed ETF, which recently hit their highest level in 13 years.

The Counterintuitive Impact of War and Inflation

The link between conflict and gold is being disrupted by a powerful, indirect mechanism. Surging oil prices—with Brent crude recently reaching $104.56 per barrel—are stoking fears of persistent inflation. These fears, in turn, are limiting the policy options for the U.S. Federal Reserve. At its March 18 meeting, the Fed held its benchmark interest rate steady in the 3.50% to 3.75% range. Its projections now indicate, at best, a single rate cut by 2026. Notably, seven of the 19 Fed officials even voted for no rate reductions at all through the end of this year.

The bond market swiftly adjusted to this hawkish stance. By mid-March, according to the CME FedWatch tool, traders were pricing in zero rate cuts for 2026. The probability of a rate increase now stands at 24.4%, which is higher than the 7.8% chance assigned to a cut. This creates a challenging environment for gold, which yields no interest. Compounding the issue is a strengthening U.S. dollar, which places additional pressure on the dollar-denominated commodity.

Faced with these conditions, institutional investors have turned to the highly liquid SPDR Gold Shares ETF as a source of cash. By March 20, outflows for the month alone amounted to roughly 44 tonnes, reducing the fund's market value by nearly $30 billion to $155 billion.

Central Bank Demand: A Structural Support

A key structural counterbalance to these outflows continues to come from global central banks. Data from the World Gold Council shows they purchased a total of 863 tonnes of gold in 2025. While this is markedly lower than the three preceding years—each of which saw purchases exceed 1,000 tonnes—it remains well above the annual average for the decade through 2021. Poland, for instance, added 102 tonnes to its reserves, bringing its total holdings to 550 tonnes. A survey reveals that 95% of central bankers expect global gold reserves to continue growing over the next twelve months.

This consistent institutional demand provides a floor for the market, but it has proven insufficient to fully offset the scale of recent short-term selling.

Diverging Analyst Views for Year-End 2026

Following an extraordinary 2025, during which gold posted more than 50 new record highs and gained over 60% through November, the correction from the January peak has been significant. The path forward remains highly uncertain. A Financial Times survey of eleven analysts produced a median year-end 2026 price target of approximately $4,610, but with a remarkably wide forecast range from $3,500 to $5,400. This disparity highlights the extent to which gold's outlook depends on unpredictable political and monetary policy variables.

In the immediate term, market participants are focused on upcoming U.S. economic data, including purchasing managers' indices and weekly jobless claims. For now, as long as the narrative is dominated by oil prices, dollar strength, and the trajectory of interest rates, gold appears less a definitive safe haven and more a variable caught in the crosscurrents of the inflation debate.