This article first appeared in Capital, The Edge Malaysia Weekly on March 30, 2026 - April 5, 2026

GOLD has seen a sharp sell-off of more than 15% since the start of the war in the Middle East. This year alone, gold has dropped below US$4,400 per ounce from a record high of US$5,589 last January, marking a pronounced correction after its strong rally in 2025.

Many investors have been caught off-guard by the recent steep correction in gold prices. Gold usually rallies during periods of uncertainty as investors flock to safe-haven assets. Industry experts say, however, that this trend tends to hold before a crisis fully unfolds, and that gold often underperforms during periods of active conflict.

In fact, during moments of acute stress, gold can fall alongside equities and other asset classes, says Franklin Templeton portfolio manager Steve Land.

“If you look back, gold has done well during periods of uncertainty — we’ve had increasing amounts of uncertainty over the last two years,” Land tells The Edge in an interview.

“Uncertainty is one of those elements that gold feeds off of. It’s a little bit like insurance for your portfolio. What it doesn’t do well with is the actual crisis. During the depths of the financial crisis and the pandemic, gold would fall alongside every other asset class.”

A key reason for the sell-off in the gold market is that investors scramble for cash in response to sudden shocks — whether financial crises, pandemics or military conflicts. He explains that assets are sold not because they are fundamentally weak, but because investors need to reduce leverage or shore up balance sheets. In such moments, gold is treated like any other liquid asset.

The list of global uncertainties that have been looming over the past two years includes pandemic-driven insecurity, US tariffs, balancing trades, discussions of expropriating Greenland, intervention in Venezuela and, now, the Iran war.

Structurally, Land says, elevated government debt, persistent fiscal deficits and greater tolerance for inflation are undermining confidence in fiat currencies. High levels of leveraged speculation, particularly in China, helped push prices higher before a sharp correction towards the end of January.

He describes this phenomenon as similar to the early days of the Covid-19 pandemic and during the 2008 global financial crisis, when gold initially dipped before recovering strongly later.

In the case of the ongoing Middle East conflict, Land observes that people are no longer thinking about future protection through gold, as they are more worried about the current situation.

Having said that, gold prices rebounded, trading around US$4,470 at 4pm last Friday after US President Donald Trump pushed back his deadline for securing a deal with Iran to end the war in the Middle East.

Another factor that is overlooked is the role of the Middle East in the global gold ecosystem. While gold continues to be mined steadily around the world, the crisis has disrupted the distribution networks that move the precious metal from producers to buyers.

Land points out that about 20% of the world’s physical gold trade passes through the Middle East, especially the UAE. “Think of it like grocery stores. The Middle East, particularly the UAE, acts like a huge supermarket where buyers and sellers meet, with gold passing through Dubai to be processed into products like jewellery and bars. It’s a major trading hub, so activity there affects gold flows in and out of the region — and, in turn, prices.

“Each hub serves different buyers. When trade shifts from one hub to another, temporary price swings can occur as new relationships and supply chains are formed. [Right now,] we have a distribution problem that has emerged as a result of this Iran war. Inflation and other factors feed into that, but at its heart, this is really about distribution.”

In short, the recent gold price dip is less about the bullion losing its appeal as a safe asset. With global markets adjusting to the temporary halt in the Middle East’s gold trading, prices are likely to continue to see volatility.

Beyond distribution, gold markets are also shaped by leverage and global currency shifts. Land highlights the impact of leveraged positions in China, where retail investors have gambled with up to 40 times leverage on the daily settlement of gold products.

“They were offering funds with leverage on top of commodity futures — leverage on top of leverage. Now, China is cracking down [on the leveraging activity],” he says.

“If you look at the gold sell-off at the end of January, we had that big drop-down. Everybody blamed it on [the appointment of Kevin Warsh as the next US Federal Reserve chairman]. But you go a little further into the news and you’ll see that China actually clamped down on a number of these products.

“It’s not just China — other markets were involved, too. People got a bit too comfortable with gold rising for so long. There were too many leveraged products that should have been regulated.”

Land points out that fluctuations in the US dollar have also affected demand in global markets. “Most gold-sensitive demand comes from outside the US. If the US dollar strengthens, buyers with other currencies can afford less gold. When the dollar weakens, demand increases.”

Land reckons, however, that the interest rate regime of central banks will have a less significant impact on the gold market.

“Gold is non-yielding. On paper, higher rates mean higher opportunity costs. But small rate changes — 25 basis points here or there — aren’t going to make people sell.”

On the other hand, Pictet Wealth Management believes the sell-off in gold has been driven by three cyclical headwinds — favourable US terms of trade, a shift in monetary policy expectations and liquidity-driven selling pressure.

“The US dollar gained because of its perceived economic resilience in the face of a Middle East energy price shock. While high energy prices will have a clear impact for consumers across the globe, they will not have an adverse impact on the US trade balance because the US is a net energy exporter.

“This dynamic, combined with short positioning in the US dollar, enabled the US dollar to outperform all its G10 peers since the onset of the Iran war,” it says in a March 25 note.

Second, Pictet says, a repricing of monetary policy expectations plays a key role in gold prices. “Oil prices have spiked because of the Iran war, leading to inflationary concerns. In response, many central bankers have adopted a more hawkish tone.

“We anticipate both a baseline and an adverse scenario. In both cases, we expect central bank rates to deviate from their current rate trajectories. As an asset with no cash flows or yield, gold is sensitive to changes in real yields and the monetary policy outlook. As a result, the change in both (relative to prior expectations) has weighed on the price of bullion. In short, the opportunity cost of owning gold has risen.”

As to the third factor — liquidity-driven selling pressure — Pictet notes that the recent sell-off in gold was exacerbated by forced liquidation of crowded long positions.

“This is evident in de-dollarisation trades expressed through emerging markets, international equity exposure and precious metals. Cross-asset deleveraging, volatility and liquidity stress have also added to the selling pressure,” it says. “Furthermore, there is anticipation that Middle East central banks and wealth funds may need to raise liquidity and sell their gold holdings, which typically represent a relatively higher share of their strategic asset allocation.”

Despite the differing views, both Franklin Templeton and Pictet remain bullish on gold and view the recent pullback as an opportunity to buy.

“We believe gold offers a compelling proposition for investors focused on wealth preservation and intergenerational resilience,” Pictet says. “We view the recent pullback as an opportunity to adjust strategic exposure and tactically position for a recovery. Should the Iran conflict stabilise, oil prices may fall, and higher rate expectations could diminish. In an adverse scenario, the risk of a global recession would increase, and central banks may be forced to cut interest rates.”

Meanwhile, Franklin Templeton’s Land views the decline in gold prices as an opportunity for investors to tap into it.

“We’re in a world of uncertainty. If your portfolio has low gold exposure, it’s a signal to buy. On the equity side, gold mining companies are also attractively valued despite current prices,” he says.

In addition, he expects that central banks will continue to be net buyers of gold as part of their reserves, a trend that shifted in 2011. Prior to that, central banks were the net sellers of gold.

One of the central banks aggressively buying gold is Poland’s Narodowy Bank Polski, poised to become the world’s 10th-largest holder. Reports indicate that Poland holds more than €63 billion (RM290 billion) in gold, making up 28.2% of its foreign exchange reserves.

China and the US hold different proportions of gold in their reserves, reflecting historical dynamics. The US maintains more than 85% of reserves in gold, whereas China hovers around 10%.

On average, global central banks held 23% of their reserves in gold in 2025, up from 17% in 2024.

“In the case of China, I think they would want to increase their percentage to something closer to average. So, there’s an increased interest in buying,” Land says.

He believes gold would become a preferred intermediary if countries “don’t trust each other’s debt or currency”.

Gold is not the only metal affected by global trends. Silver, platinum and palladium have different dynamics. Silver is heavily used in industrial applications such as electronics and solar panels. Platinum and palladium are tied to emissions reduction and the auto industry, particularly hybrids versus electric vehicles.

“Platinum is seeing renewed demand in jewellery as gold becomes expensive. Palladium, on the other hand, is rarer, lighter and less popular in consumer goods. These metals are influenced by industrial demand, not just financial speculation,” Land explains.

In contrast, copper is closely tied to global growth and infrastructure. “Large data centres use tremendous amounts of copper — for some large facilities, it is [equivalent to the amount used in] two Eiffel Towers,” he says.

According to a report by S&P Global, electricity demand worldwide will increase near ly 50% by 2040, which will drive demand for copper.

“Global copper demand is projected to rise 50% by 2040, growing from 28 million tonnes today to 42 million, driven by four vectors: core economic demand; the energy transition and addition (renewables, electric vehicles, grid expansion); AI (artificial intelligence) and data centres; and defence modernisation,” it said in a Jan 8 report.

In 2025, half of the US’ economic growth was attributed to AI spending — largely on computer chips, data centres and the electric power systems on which they run. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.