The most notable development on the market during the tense week due to the Middle East conflict was that the most familiar safe-haven asset – gold – did not react as expected. Instead of pouring money into gold, many investors switched to holding cash in USD, while selling assets that had increased sharply before last weekend attacks.
Three days after attacks on Iran occurred on Saturday, initial buying power for the precious metal quickly weakened. By Tuesday, the market reversed sharply when gold prices suddenly fell by about 4%, while silver at one point lost up to 10%.
One of the main reasons mentioned is the return of safe-haven demand for the USD. The USD Index (DXY) increased this week even though the US stock and bond markets suffered heavy losses.
Public and private investment funds in the Middle East – a region facing the risk of Iran's responses – may be prioritizing holding liquidity in USD. The sharp increase in oil and gas prices, valued in greenbacks, could also boost demand for cash in USD – the world's reserve currency.
However, the most important reason for the USD's appreciation may be concerns that major economies in Europe and Asia will be more severely affected if energy supplies are disrupted for a long time, while the US is relatively less affected. For whatever reason, the recovery of the USD also reduces the attractiveness of gold.
There are also some other factors that can explain why gold has not shown a safe-haven role this week. One of them is the correlation between gold and the Swiss Franc. Both are often considered the safest safe-haven assets in times of instability and often increase in price together, especially when other safe-haven assets such as the Japanese yen or US bonds no longer play a strong role as before.
However, unusual warnings from the Swiss Central Bank about the possibility of franc sell-off intervention on Monday caused the currency to quickly lose momentum against the USD and euro. The reversal of safe-haven transactions related to the franc could also put pressure on gold prices.
When assets increase sharply, profits are taken.
A simpler explanation is that many investors have taken advantage of profit-taking after gold prices increased sharply for a long time. In the past year, gold has almost doubled and continuously set new records.
This is also consistent with the developments of one of the strongest rising stock markets this year. South Korea's Kospi index, which had risen nearly 50% since the beginning of the year, fell more than 7% on Tuesday when the market reopened after the holiday.
Before the weekend attacks, gold and silver were two of the three markets with the strongest increases in 2026, second only to the Kospi index. Meanwhile, Japan's Nikkei index, which increased by about 15% before the end of the week, has also fallen by more than 4% since then.
In the context of increasing volatility and the risk of a new energy shock to the global economy, many investment portfolios may be prioritizing increasing the proportion of cash and liquidity.
The fact that gold has not clearly shown its role as a shelter in such an environment partly reflects the nature of the buying wave in the past year, as well as the upward momentum of this precious metal closely linked to the weakening trend of the USD after more than a decade of strong growth.
As First Deputy Managing Director of the International Monetary Fund (IMF) Dan Katz said on Tuesday, the developments of the USD this week show that the safe-haven role of this currency is still there and the USD is still the "heart of the international monetary system".
Gold prices may still rise in the future for many other reasons. However, if the recent strong increase in the precious metal is partly driven by concerns about the weakening of the USD, then developments this week may force the market to re-evaluate that assumption.
