Gold’s long-standing reputation as a safe-haven asset is facing fresh scrutiny after prices declined during the ongoing Iran conflict, according to a report by Morgan Stanley. Despite heightened geopolitical tensions, the metal has underperformed several major asset classes, raising concerns over its reliability during periods of crisis. The report highlighted that gold has delivered consistent annual gains since 2021, but its recent weakness suggests a shift in investor focus. Instead of geopolitical uncertainty, markets are now more driven by monetary policy expectations and real interest rates.
Gold Underperforms Despite Geopolitical Tensions
Morgan Stanley noted that gold fell 14.5% in March, the first month of the Iran conflict. During the same period, global equities and US Treasury indices also declined, though by relatively smaller margins. However, gold has remained nearly 10% below its pre-conflict levels even as equity markets recovered in April.
The report stated that this pattern is unusual for an asset traditionally viewed as a crisis hedge, especially during periods of geopolitical stress. It suggests that investor behaviour is shifting away from safe-haven buying during conflicts.
Monetary Policy Takes Over As Key Driver For Gold
Morgan Stanley Research Metals & Mining Commodity Strategist Amy Gower said, “Gold’s sensitivity to monetary policy has taken over as the key price driver.” She added that the metal’s safe-haven appeal has been “overshadowed” by expectations of higher real interest rates. According to the report, rising oil prices and supply disruptions linked to the conflict have reduced expectations of US rate cuts. This has made non-yielding assets like gold less attractive to investors, as higher real yields increase the opportunity cost of holding bullion.
Central Bank Selling and Outlook for Recovery
Additional pressure on gold has come from reduced demand by central banks and exchange-traded funds (ETFs). The report noted that Turkey’s central bank sold 52 tons of gold between late February and late March, while ETFs liquidated nearly 90 tons of previously accumulated holdings. Despite recent weakness, Morgan Stanley expects gold prices to recover later this year. The report anticipates renewed buying from central banks and ETFs, along with market expectations of future US Federal Reserve rate cuts. The investment bank forecasts gold could rise to around USD 5,200 per ounce in the second half of 2026.
The report comes amid broader debate over whether gold’s role as a hedge against geopolitical crises is weakening in a global environment increasingly influenced by inflation trends, energy shocks and interest rate movements.
(This article has been taken from ANI, edited for clarity)
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