Why Did Gold Suddenly Drop Despite Rising War Risks?

At first glance, rising tensions and the possibility of military action by the U.S. and Israel against Iran should push gold prices higher. However, the market is currently reacting to a different concern.

Investors are beginning to believe that any potential operation against Iran may not be short or decisive, but could turn into a prolonged conflict. At the same time, tensions around the Strait of Hormuz are pushing oil prices higher, with some estimates suggesting crude oil could reach $100 per barrel.

Higher oil prices increase expectations of inflation. When inflation rises, central banks may keep interest rates higher for longer. This scenario typically puts pressure on gold prices.

However, if geopolitical tensions escalate further, gold could once again rise as investors move toward safe-haven assets.

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