Why the Middle East Conflict Hasn’t Damaged Gold’s Bull Case
Gold has been sharply sold off, despite geopolitical concerns, but the fundamentals remain unchanged
While gold has been subject to a vicious sell-off in recent weeks, analysts believe the fundamentals that drove it to record highs in January remain in place.
The gold price peaked at over US$5500 an ounce in late January but briefly slumped to below US$4200/oz on Monday.
The start of new hostilities in the Middle East has only accelerated the decline, despite gold traditionally being considered as a safe haven investment in a time of geopolitical uncertainty.
CPM Group managing partner Jeffrey Christian believes the gold price has fallen due to profit-taking, rather than a liquidity sell-off.
“It is a little bit surprising that the price has fallen in the onset of the war,” he said during a webinar on Tuesday.
“But it’s fallen from a record high of US$5500 at the end of January, it had already fallen sharply during February, before the United States and Israel attacked Iran, and then it fell further.”
Christian sees several reasons for gold’s fall.
“Dubai is the major entry point for gold going into, not only the Gulf region, but also other Islamic countries and into India,” he said.
“That market is constrained by the fact that Dubai Airport is closed and it’s also difficult to move gold around throughout the Persian Gulf region right now. That’s one of the reasons why the gold price has come off after the United States and Israel attacked Iran.”
The closure of the Strait of Hormuz has pushed up oil prices, leading to increased concerns about inflation.
The US Federal Reserve last week left interest rates on hold.
“The market is assuming that the Fed will not lower interest rates for the foreseeable future, although that could change once President Trump puts in a new Federal Reserve board chairman,” Christian said.
“That would be catastrophic for the respect of the Federal Reserve on a global basis, which would probably propel higher gold prices, but for now, the Federal Reserve is saying they’re going to keep interest rates unchanged.
“That was a negative since last Wednesday in the gold market.”
In an article published on Tuesday, 2025 Mining Forum Americas keynote speaker Ronald-Peter Stöferle wrote that the golden decade wasn’t over.
“What we are witnessing right now is painful, counter-intuitive, and – in our considered view – entirely consistent with the anatomy of prior major cycle lows,” he said.
“Even at Friday’s close near US$4500, the market remains within our structural bull trajectory. The correction, however severe it feels in real time, is not a secular reversal.”
Where to from here?
Despite the sharp drop, the gold price will still close at a quarterly record.
“Our expectation is that the price may well plateau for a few months in the middle of this year,” Christian said.
“We don’t see it necessarily falling sharply, but let’s be honest, the price of gold can fall back to US$3500 an ounce.
“It can fall back to US$3500 an ounce and still be higher than it ever was by a wide, wide margin prior to the middle of last year.”
UBS has left its 2026 gold price forecast of US$5200/oz intact, while Morgan Stanley expects gold to average US$4500/oz in Q2, rising to US$4800/oz by Q4.
“We are 26 years into a new world of greater investment demand in more parts of the world for a longer period of time than ever before,” Christian said, adding that investors had bought more gold since 2001 than they had bought in the previous 5000-6000 years.
“Investors are buying that gold because they have long-term concerns that haven’t dissipated.
“CPM Group’s analysis is that until the economic and political environment improves, you will see more investors buying more gold than ever before.”
Still, that doesn’t mean there won’t be cyclical declines.
“You can see periods where there’s a liquidity crisis in the broader financial markets and stocks and bond prices fall sharply, and in that kind of environment we have seen in the past, some investors will sell gold to raise cash to meet margin requirements and cash requirements, because that’s one of the functions that gold provides investors,” Christian said.
“They tend to buy their gold back sooner than they buy their stocks and bonds, which is why, when you see a liquidity crisis or a recession and gold falls along with stocks and bonds, you’ll see gold will recover sooner than stocks and bonds.”
Even if a ceasefire is negotiated in the near-term, the current conflict has longer term implications.
“That is that this war has accelerated the deterioration of international cooperation and increased, and will increase, the levels of international hostilities,” Christian said.
“That is bad for the world, but it’s good for gold prices – I hate to say it.”