Gold’s underperformance during a period of heightened geopolitical tensions in West Asia has puzzled many market participants. Traditionally viewed as a safe haven, gold usually strengthens when global risks rise. Yet since 1st March, international gold prices have declined nearly 13%, while Indian domestic prices have fallen around 10%. Silver has corrected even more sharply, with global prices down 25% and domestic prices lower by about 21%.
This divergence between escalating geopolitical stress and weakening precious metal prices signals the dominance of deeper macroeconomic forces. It also raises a crucial question: Is this merely a short-term consolidation, or does it reflect a structural shift in investor behaviour?
Strong U.S. dollar overshadows safe haven demand
One of the most significant headwinds for gold has been the renewed strength of the U.S. dollar. During geopolitical flare-ups, capital typically flows not only into gold but also into the dollar, which offers unrivalled liquidity and global trust. This time, dollar demand has surged more aggressively.
The U.S. Dollar Index (DXY) climbed from around 97 in mid-February to above 100 by mid-March, reflecting large safe haven inflows. Because gold is priced in dollars, a stronger dollar makes the metal more expensive for buyers using other currencies, suppressing international demand. As a result, even though geopolitical risks typically boost bullion, the dollar’s dominance has overshadowed gold’s traditional safe haven appeal.
Rising U.S. Treasury yields further pressure bullion
Gold has also been weighed down by rising U.S. Treasury yields. From early March to 13th March, 2026, the benchmark 10-year U.S. yield rose from 4.05% to 4.28%. Higher yields increase the opportunity cost of holding gold, which generates no income.
In such environments, investors often rotate into yield-bearing assets like government bonds, particularly when inflation concerns rise. Surging oil prices during the Iran–Middle East conflict have intensified inflation fears, strengthening expectations that the U.S. Federal Reserve will keep interest rates elevated for longer. Elevated yields diminish gold’s allure, even when global uncertainty is high.
Profit taking after an extended rally
Before the West Asia tensions escalated, gold had already staged a robust and sustained rally. Many investors were cautious about entering at elevated levels, and when volatility spiked, traders seized the opportunity to book profits. Instead of attracting fresh safe-haven inflows, gold saw liquidation pressure.
Such behaviour is common after extended rallies. Investors prefer locking in gains rather than increasing exposure during periods of heightened uncertainty. The result: profit-taking amplified downside momentum, muting the impact of geopolitical risks that would normally support prices.
Liquidity-driven selling and “priced-in” geopolitical risk
During sharp bouts of global market stress, investors often prioritise liquidity. Gold — being one of the most liquid global assets — frequently becomes a source of cash when markets face margin calls or when portfolios require rapid rebalancing. This liquidity-driven selling has been a key driver of the recent correction.
Additionally, much of the geopolitical premium had already been priced into gold before the current phase of conflict. Early 2026 witnessed elevated gold prices supported by ongoing global recession fears, currency volatility, and geopolitical uncertainties. With markets already positioned for instability and anticipating major political shifts in the U.S., new upside catalysts were limited. In short, the geopolitical story had already been “bought into,” leaving little room for a fresh surge.
Interest rate expectations and technical overextension
Changing expectations around future U.S. interest rates have also influenced gold’s trajectory. Speculation over potential shifts in Federal Reserve leadership and delays in anticipated rate cuts have kept real yields elevated. Higher real yields weaken gold’s relative attractiveness as an inflation hedge.
From a technical standpoint, both gold and silver were deeply overbought earlier in the year, indicated by elevated Relative Strength Index (RSI) readings. Overbought conditions signalled stretched speculative positioning, making prices vulnerable to corrections. As technical indicators turned, traders unwound bullish bets, adding to the downward pressure.
Why Indian gold prices held steady despite a weak rupee
Interestingly, domestic gold prices in India have remained relatively steady, even as the Indian rupee slipped to record lows — a development that normally inflates domestic gold prices by raising import costs.
However, the sharp decline in international prices offset the higher landed cost caused by the weaker rupee. Domestic demand has also been subdued. Months of elevated prices have curbed jewellery buying, impacting household budgets and leading to softer seasonal demand. Importers have limited their purchases, wary of global volatility and uncertain price trajectories. These factors have kept domestic gold confined to a tight range, despite the currency depreciation.
Outlook: Near-term choppiness, long-term constructive
In the near term, gold and silver are likely to remain choppy. Strength in the U.S. dollar, elevated real yields, and uncertainty surrounding the Federal Reserve’s policy path will continue to dominate price action. Liquidity-driven selling episodes may add volatility, keeping prices rangebound.
However, the long-term outlook for precious metals remains constructive.
Several structural factors underpin this view:
- Persistent geopolitical fragmentation
- Ongoing central bank diversification away from major reserve currencies
- Structural inflation risk
- Tightening supply conditions, especially in silver
- Slowing global growth and the eventual shift toward monetary easing cycles
As policy rates eventually normalise and global growth moderates, precious metals should regain traction as strategic hedges.
What investors can do
For investors evaluating gold and silver in this complex environment, the broader message is one of patience and discipline.
Long-term investors
- Continue accumulating gold in small, staggered quantities.
- Avoid large, single point entries during periods of heightened volatility.
- Focus on gold’s core role as a hedge against macroeconomic uncertainty, currency weakness, and long-term geopolitical risks.
Short-term traders
Silver, in particular, poses a challenge for short-term trading due to its high volatility. Sudden price swings can erode positions rapidly. Until clearer directional cues emerge, cautious participation — or temporary avoidance — may be prudent.
Despite ongoing geopolitical turmoil in West Asia, gold prices remain subdued due to a combination of a strong U.S. dollar, elevated Treasury yields, profit-taking after an extended rally, liquidity-driven selling, and overbought technical conditions. Domestic Indian prices have held steady only because global declines offset currency-driven cost pressures.
Near-term volatility is likely, but the long-term potential for gold and silver remains intact. For investors, strategic, measured accumulation and disciplined risk management remain the wisest approach as precious metals continue to serve as essential components of a diversified portfolio.
