Why central banks are selling gold amid the Iran conflict

The spot price of gold is hovering around 4,838 USD per ounce, down about 10% from its late-January peak, even as geopolitical risk rises. The pullback marks a shift from last year’s rally, when central banks’ buying helped support prices despite higher interest rates.

Central banks’ selling rises amid war-related pressures

Some central banks have increased selling activity, according to metals strategists. Nicky Shiels, Head of Metals Strategy at MKS PAMP, said the rationale is increasingly linked to the realities of the war.

He pointed to several pressures: higher oil prices that strain energy-import dependent economies, currency volatility that has led some central banks to intervene more aggressively in foreign-exchange markets, and tighter fiscal conditions that limit spending.

Shiels said many central banks are effectively drawing down large “war chests” while gold trades around 5,000 USD/oz. He added that some are using gold reserves to “pay for energy, defense, or support a weakening domestic currency.”

Emerging markets lead the trend

Steve Brice, Chief Investment Officer at Standard Chartered, said emerging-market central banks appear to be leading the shift. A stronger USD and higher borrowing costs can intensify FX pressures and increase the need for intervention. He added that a weak domestic currency has prompted some central banks to sell gold to stabilise exchange rates.

While detailed data on selling activity is often slow or not fully disclosed, Metals Focus cited clear examples. Turkey has been the most notable seller this year, with gold reserves down 131 tonnes in March via swaps and direct sales to stabilise the Lira. The Lira has continued to weaken since the Iran conflict erupted, falling about 1.7% versus the USD.

Similar patterns have been reported in Russia, which has cut gold reserves to cover a budget deficit, and in Ghana, which has sold gold to boost foreign-exchange liquidity. Poland’s central bank also considered selling some gold to finance defense spending, though it remained a net buyer in 2024–2025.

Central bank buying slows; 2025 purchases fall

A key pillar supporting gold prices is weakening. Central banks have been among the strongest buyers in recent years: from 2022 to 2024, they bought more than 1,000 tonnes of gold per year, a record high, according to the World Gold Council (WGC). However, 2025 purchases fell to 863 tonnes amid volatile prices.

Natixis said the decline could reflect central banks selling gold to stabilise exchange rates and finance energy imports in an environment of higher oil prices and a strong USD.

Large buyers such as India, China and Germany remain comparatively discreet, making actual flows harder to observe.

Other drivers: retail outflows and higher bond yields

Natixis also pointed to retail investors withdrawing from gold alongside some central banks turning to net selling. Rising US bond yields further reduce gold’s appeal because it is a non-yield asset.

Adrian Ash from BullionVault described the dynamic as straightforward: gold is typically bought as insurance against crisis, and when crisis arrives, it can be used as a financing tool.

“You buy gold to hedge against crisis. Now the crisis has arrived,” he said.

Impact and outlook: tactical use, potential demand support

Ash argued that higher oil and gas prices, along with a stronger USD and higher borrowing costs, will force many central banks to raise foreign-exchange reserves and potentially defend domestic currencies.

Even so, experts said the selling appears tactical rather than a long-term structural shift. Shaokai Fan of the World Gold Council said the pattern underscores gold’s role as a reserve asset during periods of tension.

“It shows why central banks hold gold… this is a liquid asset, typically performs well in times of volatility, and can be used when needed,” Fan said.

Natixis added that major consumers, including China, often increase buying when prices fall. It suggested opportunistic demand could return if prices continue to drop, potentially providing a floor for the market.