You Call Them Safe-Haven Assets? Why Are Gold and Silver Prices Falling [Why&Next]

Gold and Silver Prices Drop Over 10–20% After Middle East War

Strong Dollar and Higher Interest Rates After the War Accelerate Price Declines

Prolonged Conflict Likely to Extend Bearish Market

After the outbreak of war between the United States, Israel, and Iran, the prices of gold and silver plunged sharply. Experts have attributed the sharp declines in these precious metals—traditionally regarded as safe-haven assets—to a combination of factors: the strengthening of the dollar and concerns over rising interest rates since the start of the war, as well as profit-taking following previous surges in prices. Analysts project that the future direction of gold prices will largely depend on whether the Middle East conflict becomes prolonged.

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Gold and Silver Prices Plunge More Than 10-20% After the Middle East War

According to the New York Mercantile Exchange and other sources on March 27, gold futures for April delivery closed at $4,546.40 per ounce as of the previous day, down roughly 13% compared to the end of last month, just before the outbreak of war. From March 11 to March 23, gold prices declined for nine consecutive trading days, dropping by about 25%—the steepest weekly decline in 43 years. Silver futures prices plunged 22.8% this month alone.

The sharp declines in gold and silver prices have negatively impacted the returns of exchange-traded funds (ETFs) based on these metals, which are traded on the Korean stock market. According to the Korea Exchange, the KODEX Silver Futures (H) ETF fell 21.1% this month, while the TIGER Gold & Silver Futures ETF dropped 14%. The KODEX Gold Futures ETF also declined by 13.5%.

Experts believe that, given the significant run-up in gold and silver prices, the Middle East war served as a catalyst for investors to take profits. Over the past year, gold prices surged 47%, while silver soared by 103%. Park Juran, a researcher at Samsung Securities, analyzed, "Gold prices entered an overheated technical zone at the beginning of the year due to geopolitical risks such as the arrest of Venezuela's president by the United States and the Greenland crisis. The Middle East conflict then triggered an even steeper decline."

The Middle East war also drove up oil prices, stoking inflation fears and reducing expectations for a Federal Reserve interest rate cut. Park explained, "Rising oil prices have fueled a stronger dollar and concerns over higher real interest rates, exerting double downward pressure on gold prices." She added, "This led to a rapid liquidation of investors' positions." When interest rates rise, investors have less incentive to hold gold, which does not yield any interest.

The Stronger Dollar and Rising Interest Rates Following the War Accelerated the Price Decline

Some argue that the drop in gold prices cannot be explained by economic indicators alone. Jun Kyuyoun, a researcher at Hana Securities, pointed to a shift in the investor base. Jun noted, "The current decline is excessive, even when considering demand for inflation hedges or safe-haven assets. The fundamental reason lies in the change in the nature of investors."

He explained, "Whereas the gold market was previously dominated by central banks and long-term investors, the recent rally has seen a sharp increase in retail capital (individual investors) through ETFs and the futures market. These funds are highly sensitive to market volatility, and as prices began to fall, there was an outflow of capital akin to 'panic selling,' deepening the downturn."

On March 24, Bloomberg reported, "The recent sharp drop in gold prices is the result of a combination of factors, including a price surge ahead of the Middle East war and changing stances of central banks around the world." The outlet added, "This downturn should be seen as a short-term correction following an excessive rally, rather than a fundamental change in the value of gold."

Volatility in gold and silver markets is expected to persist depending on the duration of the war. Park Juran predicted, "If the war and surging oil prices prove short-lived, the Federal Reserve's monetary policy will only see a delayed easing, not a shift to a new phase of tightening. In this case, the gold market could rebound as excessive tightening fears subside." However, she added, "If the war drags on, driving oil prices and the dollar higher while raising expectations for interest rate hikes, a bear market could last for more than a year."

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