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Gold prices fell even as geopolitical tensions escalated, an outcome that challenges the metal’s traditional safe-haven role. The World Gold Council (WGC) said the recent move reflects a shift in what is driving gold in the near term, with interest-rate expectations and the U.S. dollar playing a more dominant role than many investors initially anticipated.
Gold posted its strongest weekly decline in six years, even amid major conflict in the Middle East. Shaokai Fan, APAC Regional Director (excluding China) and Global Central Bank Governor at the WGC, said expectations for interest rates have been more influential on gold than initially expected.
He pointed to the U.S. Federal Reserve’s decision to keep the policy rate high for an extended period. That strengthened the U.S. dollar and pushed U.S. Treasury yields higher, putting pressure on gold.
Inflation dynamics also mattered. Higher energy prices linked to the Iran-related conflict contributed to inflation, reducing the likelihood of near-term rate cuts and keeping real yields elevated—an additional headwind for gold, which does not generate yield.
In this environment, prolonged geopolitical tensions and higher energy prices can also channel funds into USD-denominated assets, partially weakening gold’s safe-haven appeal.
While gold has historically shown resilience and often recovers early after market stress, the WGC said it is not immune to short-term volatility. In sharp corrections, investors may sell gold to meet margin calls or raise cash, causing prices to dip temporarily even if gold’s broader safe-haven role remains intact.
The WGC noted that macro and technical factors—such as rising real yields, a stronger USD, and portfolio rebalancing pressures—are likely temporary rather than changes to gold’s long-term fundamentals.
From an institutional perspective, the WGC reported that as of February 2026, global gold ETF funds recorded net inflows for nine consecutive months. Assets under management reached a record US$701 billion. North America led inflows, supported by safe-haven demand, lower opportunity costs as the dollar weakened earlier in the year, and ongoing geopolitical and policy uncertainties.
Europe was the only region with net outflows in February, driven mainly by large redemptions in the first week of the month from UK-listed funds during the late-January metal sell-off. Shaokai Fan said the WGC does not view this as the start of a long-term structural outflow trend, but rather as short-term volatility.
On the retail and investor side, the WGC said Asian demand remains steady. In Singapore, it recorded strong investor interest, with 2025 gold investment demand reaching a record 9.6 tonnes, up 48% year-over-year.
Asian gold ETFs have also seen net inflows for six consecutive months. Japan led in February, supported by yen weakness, geopolitical risk, and favorable local-currency gold price dynamics.
Looking back, the WGC said 2025 was a record year for global gold demand, surpassing 5,000 tonnes for the first time, driven primarily by ETFs as well as bars and coins in the retail market.
For the outlook, Shaokai Fan said the WGC expects investment demand to stay elevated, supported by geopolitical risk, slower growth prospects, and accommodative monetary policy.
In the upcoming period, the WGC said persistent oil supply constraints and continued inflation pressure could exert downward pressure on gold. Alternatively, if geopolitical tensions escalate further or risk broadens across more countries, safe-haven demand could rise and support prices.
Beyond direct conflict effects, the WGC highlighted that the trajectories of U.S. rates, the strength of the USD, and central bank gold purchases remain key drivers of gold performance in the near to mid-term.
The WGC said it is too early to determine definitively whether Asian investors are adding positions during price dips. However, it noted that recent declines have created buying opportunities. For example, the October 2025 price correction may have contributed to higher central bank purchases in Q4 2025.
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