By Linh Tran, Market Analyst at XS.com
Before recovering to the current price area around $5,150/oz, gold unexpectedly retreated sharply to nearly $5,000/oz after reaching a peak near $5,420/oz, despite escalating military tensions between the United States and Iran.
Part of the reason may lie in the fact that geopolitical risks had already been significantly priced in earlier. Prior to the correction, gold had risen for four consecutive weeks, pushing prices close to $5,420/oz and creating conditions for investment funds as well as retail traders to take profits, thereby triggering a sharp short-term pullback.
Additionally, during periods of heightened volatility or rising market panic, capital often flows into the U.S. dollar before gold due to its superior liquidity. In fact, the U.S. Dollar Index recorded its second consecutive daily gain yesterday, approaching the 98.8 level, which added further downward pressure on the precious metal.
However, in my view, the recent decline primarily reflects increased volatility following a strong rally, rather than signaling the start of a sustained bearish trend. In an environment where geopolitical risks continue to escalate, gold still maintains its role as a key safe-haven asset.
At present, the conflict between the United States and Iran shows no clear signs of easing, while the psychological level of $5,000/oz continues to act as a crucial support, helping the market stabilize after the sharp correction.
From the perspective of institutional flows, data from Bitget indicates that gold ETFs recorded strong inflows during January and February. By the end of February, SPDR held approximately 1,101 tons of gold, while according to SPDR Gold Shares, the fund’s holdings in early March remained around 1,094 tons. This decline is relatively small compared with the more than $400 drop in gold prices during the recent correction, suggesting that the sell-off likely originated from futures markets or short-term profit-taking, rather than a significant withdrawal of long-term institutional capital.
In the coming sessions, gold’s outlook will likely depend heavily on geopolitical developments in the Middle East as well as the direction of the U.S. dollar. Notably, divisions are emerging within the U.S. political establishment regarding the military campaign targeting Iran, as some lawmakers argue that the White House acted without full congressional authorization and are pushing for resolutions aimed at limiting any expansion of military operations.
These divisions make the trajectory of the conflict increasingly uncertain. If the military campaign prolongs or expands across the region, safe-haven demand could continue to support gold above the $5,000/oz level and potentially open the door for a retest of the recent highs. Conversely, if domestic political pressure forces the United States to scale back or limit military operations, geopolitical risks could ease, temporarily weakening safe-haven demand and leaving gold prone to continued volatility in the near term.
Overall, the recent correction can be viewed as a rebalancing phase following a strong rally, while the medium-term outlook for gold remains supported by persistent geopolitical instability, potential disruptions to Middle Eastern energy supply, and sustained defensive demand from global investors.
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