On news that the United States and Iran reached a preliminary deal to end the war, global funds shifted from safe havens to risk assets. On the 15th (local time), New York stocks jumped to record territory, but gold, which had soaked up safe-haven demand early in the war, fell to its lowest in six months.
The blue-chip Dow Jones Industrial Average rose 0.9% to a record closing high of 51,671.03. The tech-heavy Nasdaq composite climbed 3.1% to 26,683.94, and the large-cap S&P 500 added 1.7% to 7,554.29. News that geopolitical uncertainty in the Middle East, which had weighed on the global economy, had cleared spurred buying of risk assets.
Gold, by contrast, cooled sharply. According to the Financial Times (FT), international gold prices fell intraday to $4,022 per ounce on the 11th, the lowest in six months since last November. Compared with the early-February peak when the Iran war began, they are down more than 20%. Gold is on track for its worst quarterly performance in a decade.
When war or crisis erupts, gold prices usually rise. Gold has no risk of default by an issuer, and even if currency values fall, it holds value as a physical good. That is why investors buy gold when stocks collapse and currency values wobble. For this reason, gold is considered a representative safe asset (an asset that preserves value in a crisis).
This Iran war moved contrary to that convention. Because the battlefield was around the Strait of Hormuz, a chokepoint for global oil supplies, international oil prices surged. Higher oil prices pushed up production and transportation expenses, stoking inflation. If prices rise quickly, the Federal Reserve could keep rates higher for longer or raise them further to drain liquidity (money) from the market.
FT said the key driver of gold's decline was expectations for U.S. rate hikes. According to Reuters, markets saw more than a 68% chance that the Fed would raise rates this year. Gold is a "non-yielding asset" that provides no regular revenue like stock dividends or bond interest. When market rates rise, the opportunity cost (the interest one could earn by putting money into another asset) of holding interest-free gold increases. As a result, investors tend to shift funds from gold to bonds that pay interest with certainty.
Supply and demand also dragged gold lower. According to the World Gold Council (WGC), from March to May, global gold exchange-traded funds (ETFs) saw net outflows totaling 55 tons. This is seen as speculative investors, who had led the gold rally since late last year, taking profits. Peter Kinsella, head of investment services at Union Bancaire Privée (UBP), told FT, "When the Iran war started, investors bought gold to reduce portfolio risk," adding, "They sold gold to fund other assets that had lagged, based on the profits they made then."
Anticipation for a blockbuster initial public offering (IPO) by SpaceX and listings by AI companies such as Anthropic and OpenAI also weighed on gold investors' capital allocation. Tom Price, an analyst at Panmure Liberum, told FT, "Investors are looking for places like SpaceX instead of gold to keep the party going." Selling by emerging-market Central Banks added to the pressure. Türkiye sold or mobilized about $20 billion worth of gold for currency defense, and Russia also sold gold to plug its finances.
Major investment banks said gold prices would remain volatile in the short term but stay strong over the medium to long term. Citibank cut its Brent crude outlook right after the U.S.-Iran deal but set a six-month gold target at $5,000 per ounce. They said gold has now entered a phase where it reacts more sensitively to oil prices, interest rates, and the value of the U.S. dollar than to war headlines. According to the European Central Bank (ECB), as of the end of last year, gold accounted for 27% of global official foreign exchange reserves, ahead of U.S. Government Bonds (22%) and the euro (15%).
In fact, immediately after the deal was reported on the 15th, gold prices rose instead. According to Reuters, spot gold jumped 2.6% to $4,327.82 per ounce, and U.S. gold futures rose 2.7% to $4,351.6. It held around $4,340 on the 16th. The move is seen as reflecting expectations that if the end of the war drives oil prices down, inflation and rate-hike fears will also ease. According to Reuters, after the U.S.-Iran deal, the market's perceived probability of a Fed rate hike fell from about 70% to 58%.