Why Has Gold Slumped During the U.S.-Iran Conflict? UBS: Safe-Haven Status Hasn't Failed, Only Delayed

Gold has been on a relentless tear since last year, repeatedly scaling to fresh all-time highs. However, following the outbreak of the U.S.-Iran conflict in late February, the precious metal abruptly lost its upward momentum. Bullion has now retreated more than 20% from its January peak.

 

This downturn has left many investors puzzled: If gold is the ultimate safe-haven asset, why has its defensive character seemingly vanished during a major geopolitical crisis?

 

According to UBS Global Wealth Management, the answer is straightforward: Gold’s safe-haven status has not failed; rather, its impact is merely "lagging."

Safe-Haven Fundamentals Remain Intact

In a report released Monday, UBS Global Wealth Management reaffirmed its bullish stance on the metal. Analyst Wayne Gordon and his team argued that despite the recent correction, investors should maintain gold holdings as a critical defensive hedge.

 

The current price action appears counterintuitive, as gold has exhibited an inverse correlation with wartime tensions: prices have often softened when conflict intensified and stabilized during lulls. This defies the conventional wisdom that war should trigger an immediate flight to safety in bullion.

 

However, Gordon’s team remains undeterred.

 

"We do not view this as a 'Bernanke Moment'—a fundamental pivot point—for gold," Gordon stated. "We see distinct differences from previous central bank policy shifts decades ago, suggesting that fundamentals remain sound. We expect strong support for gold prices based on forthcoming macroeconomic developments."

 

The analyst added that the team’s view of gold as an effective portfolio hedge remains unchanged, forecasting that a price recovery is imminent.

Delayed Reaction: A Historical Perspective

UBS attributes the recent slump to several factors, including waning confidence in Federal Reserve rate cuts and a cooling of speculative momentum. Nevertheless, Gordon suggests that a bearish outlook may be premature if history is any guide.

 

"For many investors, gold’s subdued performance in the face of geopolitical friction and heightened volatility seems counterintuitive," he noted. "However, history shows that gold does not always rally during the initial stages of a conflict."

 

Gordon pointed to the 1970s oil crisis—a period with striking similarities to the current Iran-driven energy spike—where gold surged on rampant inflation fears. Conversely, during the Iran-Iraq War, gold prices remained largely flat as competing macroeconomic forces offset one another.

 

The takeaway, according to UBS, is that gold prices are rarely driven by the conflict itself, but rather by the broader policy and economic backdrop.

 

 "As the market adjusts to expectations of higher-for-longer interest rates and a resurgent U.S. dollar—both short-term headwinds for bullion—gold’s store-of-value role in the early cycle has come under pressure," Gordon explained. "This is not a failure of gold’s safe-haven performance, but a delay."