Today’s Market Minute was written by Sanjana Gopal, associate economist with RSM India.
As the war in Iran has set off strains in the global economy, investors have sought a safe haven in the U.S. dollar.
Even as the dollar has fluctuated in value, it has appreciated by about 4% since Feb. 28, when hostilities broke out.
Gold, though, has been a different story. Despite being seen as a safe haven in times of turmoil, gold has declined by more than 20% since the war began, reversing its gains of previous years.
The dollar’s resilience and gold’s fall are further evidence that the dollar, despite recent questions about its status as the world’s reserve currency, continues to be preferred by global investors in times of stress.
This is not to say that the dollar has been immune to other pressures. An unsustainable fiscal path, an erratic trade policy and rising inflation all have put downward pressure on the greenback.
But there’s nothing like a global supply shock to make investors re-evaluate their options for safe places.
What’s more, the dollar’s resilience comes after efforts around the world, particularly in China, to reduce the global economy’s dependence on the dollar. If anything, recent events have shown that, at least for now, there is no viable alternative to the dollar as the global reserve currency.
Before the war
Gold’s recent decline was hard to imagine in the years before the war. From 2022 to 2025, gold surged by about 150%. Several factors drove the increase. These include:
- Geopolitical stress: The increase in geopolitical stress and increased demand for safe-haven assets after Russia’s invasion of Ukraine.
- Lower U.S. inflation: The decreasing trend in U.S. inflation, which implied the softening U.S. interest rates if the Federal Reserve were to further ease monetary policy.
- Central bank demand: The softening value of the dollar made it cheaper for foreign central banks among the developing economies to purchase U.S. dollar-denominated gold.
- China ascent: China is stretching its influence across the developing world, offering increased gold as a symbol of its ascent within the world’s financial sector.
During the war
When the war broke out, though, other economic forces came into play, particularly the energy shock. Oil, after an initial surge, has eased but is still notably higher than before the war.
Higher oil prices have led to higher inflation, even as gold has declined…
… and also to rising Treasury yields. Now, the prospect of rate hikes by central banks is acting like a headwind for gold.
The takeaway
Gold’s rally in the run up to the Iran war reflects a confluence of geopolitical stress, easing U.S. monetary policy expectations, dollar dynamics and a structural pivot by emerging market central banks toward reserve diversification and de-dollarization.
But in the near term, gold prices are being shaped by a competing set of forces, with inflation uncertainty, elevated yields and oil-driven dynamics tempering the upside.
As a result, gold is caught in a push pull equilibrium between long-term structural demand and shorter-term macro headwinds.
