Isn’t war supposed to be bullish for gold? BullionVault director of research Adrian Ash explains the 3 reasons why the ‘safe haven’ is dropping instead, losing 5% on Thursday alone in Dollar terms as silver prices crashed by 11%.
Gold and silver are caught in the wider market panic, selling off as traders rush to cut losses and risk. Losing almost 7% since last Friday, gold is on track for its steepest weekly drop since the start of the Covid pandemic, and volatility continues to run at the worst since the collapse of Lehman Brothers in 2008.
Those comparisons are telling, because they challenge the common assumption that gold only goes up when crisis strikes. It’s a myth that precious metals jump every time bad things happen. Gold fell during the panic phase of both the financial and Covid crises. But it went into those shocks with strong gains, and it then extended its underlying uptrend as other assets continued to fall.
Looking at the mechanics of why gold has fallen this month:
Margin calls
In periods of such sudden market stress, traders will liquidate winning positions to cover their losing bets on other assets. Precious metals offer big gains to tap after making their strongest annual rise since 1979. Gold now shows a further 7% gain year-to-date vs. a 2% drop in Western stock markets.
Value at risk
The explosion in volatility means value-at-risk has leapt for all portfolios and trading books. So, positions have needed to be scaled back or shut, regardless of asset.
No interest rate cuts
Because gold pays no income, it’s intuitive that bullion prices should struggle when interest rates rise. Market expectations have completely reversed thanks to the energy-price shock, creating a stiff headwind for non-yielding assets.
Bottom line?
Gold and silver’s dramatic start to 2026 was driven in part by fears of a new Middle East war. Now that those fears have become a reality, it’s possible to view the lacklustre performance of precious metals since the conflict began as a classic ‘Buy the rumour, sell the fact’ trade.
But stepping back, that in itself doesn’t change anything about the long-term drivers of today’s gold and silver bull market, from ballooning government debt to fears of inflation, worries over the bubble in tech stocks, and the breakdown of geopolitical order. And while short-term conflict rarely drives bullion prices higher, the new Middle East war gives investors another reason to seek shelter as it destabilizes financial markets and the global economy.
