3 min readMumbaiMar 28, 2026 04:59 AM IST
Gold prices have crashed sharply amid the ongoing war in West Asia.
Previously, prices of the yellow metal had surged in 2025 and early 2026 to multiple record highs when the US’ tariff threats had plundered markets around the world and had weighed on the US dollar.
Despite a nearly 2% rally over the last couple of days, gold prices on both thedomestic and global markets are down around 27% from their January peak, despite the war in West Asia battering global markets.
Gold futures have fallen 13% to Rs 1.41 lakh per 10 grams on the Multi-Commodity Exchange since the war in West Asia started late last month.
So why is there no safe-haven demand for bullion currently, as seen earlier when geopolitical uncertainty was elevated?
The key aspect holding back safe-haven demand for gold this time is the sky-high prices of crude oil.
High crude prices lead to fears of inflation levels rising around the world, which delays rate cuts by central banks around the world. Some central banks may even consider raising interest rates to combat inflation if the situation worsens as the West Asia conflict prolongs itself.
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“This time, the only negative for gold, despite everything else remaining positive, is the high crude oil prices and therefore inflation, and the strength of the dollar,” said Naveen Mathur, director of commodities and currencies at Anand Rathi Shares and Stock Broking.
“Pre-war, the talk of the town was that the Fed (Federal Reserve) and other major central bankers would promote growth because inflation, to a large extent, had been anchored globally. Now, despite the global economy being in doldrums, they may not be willing to cut rates.” While high inflation levels make gold an attractive option for hedging, higher interest rates shift investor sentiment towards yield-bearing assets such as bonds and treasuries instead of non-yielding assets such as gold.
Traders now see no probability of a rate cut in the US Federal Reserve’s April meeting, according to the CME Fedwatch tool. In fact, 6% of traders now expect the Fed to raise rates by 25 basis points, the tool showed. For India, while inflation levels remain comfortably within the Reserve Bank of India’s (RBI) tolerance band of 2%-6% for now, the central bankers may turn hawkish in their policy stance if high crude prices for a prolonged period lead to elevated inflation. While the RBI may not raise interest rates, it will at least delay the rate cut cycle, which may weigh on the stock markets and make bonds attractive.
The US dollar has also emerged as a safe-haven asset this time around. The dollar index, which measures the strength of the dollar against many other global currencies, has strengthened by over 2% to around 100 since the West Asian war began, compared to the 96 levels it had dipped to when the US tariff threats were at a peak.
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These factors have provided an opportunity for investors to book some profits in gold after its rally to the peak, leading to a fall in gold prices, and instead invest in the US dollar.
