“Does War Always Drive Prices Up?” The Betrayal of Safe-Haven Assets... Gold, Silver, and Copper Hit by Fear

Precious metals such as gold and silver, which are considered representative safe-haven assets, have continued to decline since the outbreak of the Iran war. Analysts attribute this to a decrease in investment appeal as expectations for interest rate cuts have subsided due to concerns over U.S. inflation.

Yonhap News

On the 19th (local time) at the New York Mercantile Exchange, April gold futures closed at $4,605.7 per ounce, down 5.93% from the previous session. Silver also fell by 8.22% to $71.22. The prices of precious metals such as gold and silver have continued to decline since February 28, when the Iran war broke out. Compared to February 27, gold and silver prices have dropped by 12.24% and 23.66%, respectively.

As expectations for key interest rate cuts across countries have faded, investor sentiment has also weakened. Recently, the U.S. Federal Reserve kept the federal funds rate unchanged at 3.5–3.75% after the regular Federal Open Market Committee (FOMC) meeting. This decision was based on the fact that, despite signs of a slowdown in employment, inflation remains above the target level. Notably, the dot plot, which drew significant market attention, forecast the median year-end benchmark rate at 3.4%, the same as the December 2025 projection. This is interpreted to mean that only one rate cut is expected within the year.

The European Central Bank (ECB) also kept all three key policy rates unchanged. Until last month, the market expected that the ECB would cut rates once this year. However, as the Iran war has dragged on and energy prices have surged, expectations for a rate cut have weakened. Some are even discussing the possibility of additional rate hikes.

Since gold is an asset that does not offer interest income, it becomes more attractive in a low-interest-rate environment. Conversely, when rates are high, investors tend to prefer other assets such as bonds that provide stable returns. Akash Doshi of State Street Global Advisors explained, "Before the war, markets were anticipating two rate cuts by the Fed. However, the current market is pricing in no rate cuts at all this year."

The Wall Street Journal (WSJ) reported that a similar trend occurred in 2022. Russia’s invasion of Ukraine led to a surge in energy prices, fueling inflation. Gold prices fell for seven consecutive months, from April to October of that year.

In addition, outflows from exchange-traded funds (ETFs) have also been cited as one of the reasons for the decline in prices of precious metals such as gold. According to Bloomberg, there have been steady outflows from gold ETFs—one of the main vehicles for holding gold—in recent weeks, dragging down prices. Demand for gold ETFs tends to be particularly sensitive to changes in interest rates.

There is also analysis that profit-taking has occurred following previous price increases. Gold reached a record high of $5,586.2 during intraday trading in January of this year. Suki Cooper, Head of Global Commodity Research at Standard Chartered, stated, "Given that gold and silver prices have risen significantly over the past two years, some investors may be taking profits to cover other losses in their portfolios, such as margin calls triggered by steep declines in equities."

Some analysts point out that weakening demand for metals, resulting from a global economic slowdown, is having an impact. The WSJ reported that platinum, palladium, copper, and aluminum have all been trending lower this month. This indicates that investors are recalibrating their expectations for global economic growth. Edward Meir of commodities trading firm Marex explained, "Should a global economic downturn occur, investors believe that demand could contract in some areas."

This content was produced with the assistance of AI translation services.