Why gold has lost its glister

Investors raising cash by selling high-flying assets

As we look at how financial assets are behaving during the Middle East conflict, it’s striking that gold, considered the quintessential “safe‑haven” asset, has performed so underwhelmingly. Gold climbed from US$5,296 to US$5,423 per troy ounce after the U.S. and Israel carried out strikes on Iran on Feb. 28, reflecting the typical flight toward “safe haven” assets during geopolitical shocks. But, by the end of trading on March 3, gold had fallen nearly 6%, to US$5,085. Since then, even as tensions have intensified, gold has traded in a relatively narrow range between US$5,050 and US$5,200.

The metal’s weakness caught many by surprise, especially considering the sharp rally during Israel’s 12-day war with Iran that began on June 13, 2025. That said, gold surrendered the bulk of those gains when a ceasefire was announced (see chart below).

There are factors at play that were not evident during the 12-day war. For one thing, gold was trading at much lower prices in June 2025. More importantly, the June 2025 conflict was limited to exchanges between Israel and Iran and thus was not impacting the funds flow from global central banks that have been major investors in gold to diversify away from U.S. dollars.

When the conflict incorporates the U.S. military and the blowback from Iran is to inflict economic harm by restricting oil shipments through the Strait of Hormuz, there are serious inflation expectations that get priced into U.S. Treasuries across the yield curve. Higher interest rates make Treasuries more attractive, increase the value of the U.S. dollar and push up the costs associated with holding a financial asset that pays no income. Public and private wealth funds across the Arab Emirates have been investing new monies into U.S. Treasuries opting for a liquidity buffer against Iranian retaliatory strikes. In a strange twist, higher oil prices have been a tailwind for the U.S. dollar against major world currencies (see chart below).

The year-to-date rise in the U.S. dollar index has more to do with weakness across European and Asian economies that face greater disruption from higher oil prices. The U.S. is a net exporter of oil, Europe and Asia are net importers. Point is, a rebounding U.S. dollar takes the shine off gold.

Other possible reasons for gold’s “no-show” is its correlation with the Swiss franc. ‌Both are traditionally the safest of safe havens in stressful times and get bid up in tandem. That theory played out as the Swiss franc surged when the bombs began to fly. However, the Swiss National Bank quickly intervened with massive selling on March 2 which reversed the currency’s gains against both the dollar and the euro. The resulting unwind of safe-haven trades may have added to the downward pressure on gold.

Another explanation, one we believe has real staying power, is that investors and speculators who aggressively bought into an asset that nearly doubled over the past year may now be adopting a risk-off stance by taking profits on their strongest performers. As concerns about liquidity, a potential energy shock, and increased volatility emerge, investors may simply be raising cash. A de-risking strategy typically begins by unwinding a portfolio’s most profitable positions.

In this case, gold and silver, the second- and third-best‑performing assets of 2026, were prime candidates for selling. This explanation seems to coincide with the March 3 reversal in South Korea’s Kospi benchmark index. The Kospi benchmark had been the year’s best-performing stock market having risen by nearly 50% before the sharp 7% selloff on March 3, propelled by South Korean traders just returning from a long week-end holiday.

The upside is that following a period of de‑risking, assets sold to shore up liquidity are typically repurchased once markets stabilize.

Richard Croft is Founder, Chief Investment Officer, and Portfolio Manager of R.N. Croft Financial Group Inc.

Disclaimers

Content © 2026 by R.N. Croft Financial Group Inc. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Investment funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently, and past performance may not be repeated. The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

R N Croft Financial Group Inc. is a Licensed Discretionary Portfolio Management and Investment Fund Management company serving investors and investment professionals across Canada since 1993.

Image: iStock.com/quantic69