Gold is supposed to be the asset investors run toward when the world gets dangerous. The Iran war, now in its fourth month, has closed the Strait of Hormuz, sent oil prices surging, and rattled global markets. Gold has dropped more than 22% since the conflict began in late February.

Why the safe-haven logic flipped

The war's biggest economic consequence has been inflation, not fear. Disrupted energy flows pushed consumer prices to their fastest pace in three years in May. That forced traders to reprice Fed policy fast.

Traders are now pricing a 67% chance of a rate hike by December, per the same report. Higher rates make yield-bearing assets like Treasuries more competitive than gold, which pays nothing.

JPMorgan says retail and institutional investors have stepped back from the "debasement trade" citing ETF outflows and weaker futures positioning.

The structural case still intact

According to Kinsella, ~80% of global FX reserves are held by emerging-market central banks. Many concluded their dollar-denominated reserves could be seized in a political dispute. The response has been a sustained wave of central-bank gold buying.

New ECB estimates show gold now accounts for 27% of total official global reserves as of end-2025, above US Treasuries at 22%. Unlike sovereign bonds or currencies, physical gold carries no counterparty risk — a trait that matters more as trust between nations weakens.

Global bar and coin demand rose 42% year-over-year last quarter, per the World Gold Council. In Japan, retail demand for physical gold has been particularly strong. The yen has weakened sharply as the government manages its debt burden, Coltman noted.

Where the price forecasts land

Near-term, the bears have the momentum. David Wilson, director of commodities strategy at BNP Paribas, said he expects gold to break below $4K per ounce. JPMorgan has forecast gold could reach $6.3K per ounce by year-end 2026, though that target predates the recent breakdown.

Coltman's outlook is conditional. He said a peace deal with Iran could allow gold prices to resume their upward trend and recover above $5.0K per ounce by year-end. Kinsella puts his year-end target at $5.5K per ounce, requiring both lower front-end rate expectations and reduced geopolitical uncertainty.

One counterintuitive risk is that a further escalation could push gold lower before any rebound. Energy-importing nations under financial stress may need to liquidate reserves.

Gold is still up ~25% from a year ago. The structural buyers haven't left the market. But until the Iran conflict cools and rate expectations shift, the tape remains bearish.