What is driving the fall in gold prices? | Explained

The story so far:

Gold, long seen as a safe haven in times of crisis, is behaving differently this time since the onset of the West Asian conflict on February 28. Since the start of the war, gold prices have fallen sharply. In India, 24-carat gold, which was trading close to ₹1.9 lakh per 10 grams in late January, has dropped to around ₹1.3 lakh per 10 grams. In most crises over the past two decades, gold has either held its value or risen. During the 2008 financial meltdown, gold surged as banking systems faltered. It rose sharply again during the COVID-19 pandemic as economies shut down and central banks flooded markets with liquidity. After Russia’s invasion of Ukraine in 2022, gold surged nearly 10% in the weeks following the start of the conflict. “Everybody should turn to gold as a safe haven when there is a political crisis, a military crisis, a financial crisis, or an oil crisis. That’s the first thing we do,” Bhagwan Das, former associate professor of Economics at Loyola College, Chennai, said. So why isn’t that happening now?

Why does gold usually rise in a crisis?

Gold does not pay interest, unlike other common assets. So, when returns on other safe assets such as U.S. government bonds rise, gold becomes less attractive because investors can earn a steady income from bonds. But when bond yields fall or uncertainty spikes, the reverse happens, and investors move into gold to preserve their wealth.

There is also the dollar factor. Gold is priced in U.S. dollars globally. When the dollar weakens, gold becomes cheaper for buyers using other currencies, pushing up demand and prices. A weaker dollar and lower interest rates combined — which was the case in several past global crises — are gold’s best friends.

What changed this time?

Several things changed at once, and all of them have pushed gold prices down. Factors that usually support gold, low interest rates, and a weaker dollar, have all moved in the opposite direction.

When the West Asian conflict began, oil prices jumped sharply, crossing $120 a barrel and breaching $100 per barrel for the first time since Russia’s invasion of Ukraine in 2022. The war created one of the largest supply disruptions in the global oil market, according to a March report by the International Energy Agency.

Higher oil prices push up the cost of almost everything, raising fears of inflation. In response, central banks typically raise interest rates to cool demand. While rates have not yet risen further, expectations have shifted. Markets now expect rates to stay higher for longer.

When investors expect interest rates to remain high, government bonds, which pay a fixed return, become more attractive. Gold, which yields no interest, has to compete with that. Even without an actual rate hike, the mere expectation that rate cuts are off the table is enough to push investors toward bonds and away from gold.

Before the conflict, inflation had been easing globally, and major central banks had been signalling rate cuts to support slowing economies. The oil shock changed that calculus.

“The changing expectation of central bank policy actions has been a key factor,” said Kavita Chacko, Research Head for India at the World Gold Council.

Higher expected interest rates also make dollar-denominated assets such as U.S. Treasury bonds more attractive. As money flows into these assets, the dollar strengthens — and a stronger dollar makes gold more expensive for foreign buyers, dampening demand.

“The strengthening dollar increases the opportunity cost of holding gold,” Ms. Chacko said. “That has been a key factor influencing prices.”

Why are investors now selling gold specifically?

Gold had been having a strong run. Internationally, prices touched over $5,000 per troy ounce before the conflict began. In India, prices hit an all-time high of nearly ₹1.8 lakh per 10 grams of 24-carat gold in late January 2026, capping a streak in which prices had more than doubled over two years, driven by geopolitical uncertainty, central bank buying, and a weakening dollar through most of 2025.

When prices fall sharply from such highs, a chain reaction can set in. Investors who had set automatic sell orders to limit their losses see those orders trigger, flooding an already falling market with supply. That pushes prices down further, triggering more sell orders yet. The fall in prices feeds itself.

Compounding this is a liquidity crunch amidst looming fears of a prolonged war and potentially long-lasting oil supply disruption. Stock markets have fallen sharply since the conflict began, and when one part of a portfolio bleeds, investors often sell what is still in profit to cover the damage. Gold, sitting on years of gains, is an obvious candidate.

“It is a liquidity issue. Other asset classes have seen sharp falls, so you make up for shortfalls there, cover losses there by booking some profits here,” Ms. Chacko said.

Is the dollar now the haven gold used to be?

To some extent, yes, at least in the short run. There is a growing push to move away from the dollar. Its share in global foreign exchange reserves has declined from about 71% in the early 2000s to under 60% in recent years, as countries diversify into other currencies and gold, according to the U.S. Federal Reserve. But that shift has limits, and the dollar still dominates a third of all global trade denominated in it.

It remains the currency countries need when they buy oil or pay for imports. For now, when a crisis hits, the world still reaches for dollars.

When oil, also priced in dollars, becomes more expensive, countries need more dollars to pay for their imports, driving up demand for the dollar.

“American dollar is the go-to currency whenever there is a threat of inflation caused by rising crude oil prices,” Mr. Das said. “Gold has lost its appeal temporarily. The emphasis is going back to the dollar.”

But gold has not lost its shine yet. Central banks that are among the largest and most consistent buyers of gold have not stopped accumulating it. Purchases slowed modestly in 2025 compared to the three years prior, but remained well above historical averages, Ms. Chacko said. The World Gold Council’s data for February 2026 points to a strong rebound in central bank buying.

After the U.S. and its Western allies froze Russian financial assets held in Western banks following the Ukraine invasion, many governments pivoted to concluding that financial assets alone were insufficient as reserves.

Gold, which is a physical asset that cannot be frozen or sanctioned, became more attractive.

Should ordinary investors be worried?

Price corrections of this kind are not unusual, Mr. Das said. Gold has experienced sharp pullbacks before, including after its peaks in 2011 and 2020, only to recover and move higher eventually.

In India, the picture is more nuanced. Physical demand for jewellery has softened as consumers adjust to higher prices. But investment demand, particularly through gold exchange-traded funds (ETFs), has remained resilient.

Gold ETF inflows in India were positive for the tenth consecutive month in February, according to World Gold Council data, even as some investors booked profits. Physical demand for gold told a similar story. While February gold imports were 38% lower than January, they were still over 80% higher in volume compared to the same month last year.

“The underlying demand is still there,” said Ms. Chacko. “When there has been a correction and people see prices stabilise, there is often an immediate rush to buy. The sentiment appears to be quite positive and bullish.”

What happens next then?

Much depends on how the West Asian conflict unfolds. If oil prices stabilise or fall, inflation fears will be eased, rate hike expectations will recede, and gold’s appeal as a non-interest-bearing asset will increase again. If the conflict deepens and oil climbs further, stagflation which is prolonged slow growth combined with high inflation, becomes a real concern, which has historically also been good for gold.

“Price correction is a normal thing in every market,” Mr. Das said. “Gold will certainly appreciate in the future. This is a temporary situation.”

The short-term picture is volatile and uncertain, and how far prices will move remains anyone’s guess. The longer-term forecast, analysts say, remains intact.