Why Gold Isn't Acting Like A Safe Haven Right Now

(MENAFN- ING) Gold has struggled since the Iran war began Why gold has sold off during the conflict

Gold's safe-haven appeal tends to perform best in a financial crisis or growth shock – when real yields fall and the dollar weakens. A supply-driven energy shock does the opposite. Higher oil prices push inflation up, keep central banks on hold and strengthen the dollar, all of which weigh on gold. High liquidity also makes it a source of funds when investors need to cover losses elsewhere.

We saw the same dynamic in 2022 after Russia invaded Ukraine. After an initial rally, gold came under pressure as the inflationary impact of higher energy prices pushed yields and the dollar higher. The same dynamic has played out here, only faster.

The macro headwind

The Federal Reserve left rates unchanged in April and the tone from Chair Jerome Powell was cautious. Inflation has re-accelerated since the war began and the case for near-term easing has weakened. Our US economist still expects easing in the second half of the year, but a prolonged energy shock could push that back. Real yields and the dollar remain the key constraints on gold.

Peace talks support a recovery, but progress has stalled

Gold has given back some of last week's gains, after President Trump rejected Iran's latest peace proposal as“totally unacceptable”. The setback keeps the ceasefire timeline uncertain and inflation risks elevated – reinforcing the higher-for-longer rate narrative that has weighed on gold throughout the conflict. A durable resolution remains the key catalyst for a sustained gold recovery.

On the macro side, Friday's payrolls data showed employers added jobs for a second consecutive month in April and unemployment held steady at 4.3%. That gives the Fed little reason to rush on cuts, keeping yields and the dollar as near-term headwinds for gold. CPI data due Tuesday will be the next key test – a further inflation surprise would reinforce the picture. Powell's tenure ends this week, adding another layer of uncertainty around the Fed's independence.

Central banks remain a structural pillar

Central bank demand continues to underpin the market. China's central bank returned to buying in April, adding 8.1 tonnes – the most since December 2024 – extending its buying streak to 15 consecutive months and lifting total holdings to around 2,305 tonnes.

Overall, although central banks turned net sellers of gold in March, with net sales of around 30 tonnes, purchases in the first quarter still totalled 27 tonnes, according to data from the World Gold Council. Turkey led the selling, cutting holdings by 60 tonnes as part of efforts to support FX liquidity, taking its first quarter net sales to 79 tonnes. Buying remained concentrated, with Poland adding 11 tonnes in March and 31 tonnes year-to-date.

Poland remains the biggest central bank buyer of gold

In Q1, central bank demand was up 17% quarter-on-quarter, despite an uptick in sales, with Poland and Uzbekistan leading the buying. The National Bank of Poland was once again the largest purchaser, increasing its gold reserves by 31 tonnes over the quarter to 582 tonnes. Despite recent statements by Governor Adam Glapiński about the possibility of selling some of its gold, the central bank appears to remain focused on reaching its 700 tonne target.

Reported sales also increased, specifically from Turkey, Russia and Azerbaijan. The largest seller of gold in Q1 was Turkey, where official sector holdings fell around 70 tonnes (approximately 10% of total official sector holdings) based on available reported data. The bulk of the sales came in March, with the bank utilising an additional 80 tonnes via gold swaps for FX and liquidity purposes.

This points to a slower but still positive trend in official sector demand, with reserve diversification remaining supportive for gold over the medium term.

ETF flows starting to turn

ETF outflows have weighed on prices since the conflict began, unwinding much of this year's previous inflows. Early signs suggest positioning is beginning to shift.

Global gold ETFs recorded roughly $6.6bn of inflows in April, flipping from March outflows, according to World Gold Council data, with Europe leading the move, reflecting concerns that the region would be more exposed to a Strait of Hormuz closure. Contributions from Asia and the US were around a third of Europe's over the month.

Holdings remain well below the November 2020 peak, leaving room for a significant rebuild. ETF flows track Fed expectations closely – Fed easing should be a catalyst for renewed inflows in the second half.

Flows flip positive in April

Meanwhile, COMEX managed money net longs continue to point to a constructive investor backdrop, though positioning has yet to reach crowded territory.

Gold positioning not yet stretched Near-term risks, long-term support

We remain constructive, but the stalling of peace talks adds near-term uncertainty. Trump's rejection of Iran's latest proposal keeps the ceasefire timeline unclear and inflation risks elevated, which limits the Fed's room to cut.

The path higher depends on energy prices easing, inflation cooling and the Fed cutting in the second half of the year. Central bank buying and recovering ETF flows provide additional support.

We now see prices rising to $5,000/oz by year-end. The main downside risk is a breakdown in peace talks that keeps energy prices elevated and the Fed on hold into year-end.

Gold's safe-haven role is not in question. However, recent months have shown that short-term price action can still be dominated by macro forces – particularly real yields, the dollar and expectations for Fed policy. Once those headwinds begin to ease, gold's underlying support should reassert itself.

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