Introduction
Today I want to talk about something that I am sure many of you might have been questioning. The question is simple.
- There is a war going on between the US and Iran.
- West Asia is in the middle of a serious conflict.
- Oil prices are rising.
You will agree that the present situation is very tense. And yet — gold, which is supposed to be the safest asset in the world during a crisis, is actually falling in price.
Gold was at around Rs 1.70 lakh per 10 grams in early March 2026. Today, it is sitting somewhere around Rs 1.62 lakh per 10 grams.
That is a fall of roughly 7% to 8% percent in about 3 weeks. When we hear about a war-like situation, we expect gold to shoot up, right?
Instead, this time, it has gone the other way – the gold price is falling.
So the question is, what is happening?
I’ll try to explain the situation in this article.
Video
1. Let us first understand why we buy gold in the first place.
Beyond the cultural value we place on gold, there is also a financial logic to investing in it. The logic is this:
“When the world becomes uncertain, currencies are losing value, the stock markets are falling, gold tends to hold its value during such problematic times.”
That is why we often refer to gold as a safe-haven asset.
And historically, this logic of investing in gold has been found to be true:
- During the 2008 financial crisis, gold went up.
- During COVID in 2020, gold went up.
- During the Russia-Ukraine war in 2022, gold went up.
So now, when a major conflict breaks out between the US and Iran in 2026, it is completely natural to expect the same thing to happen. But it has not. So, what is the reason?
The reason is that the gold price does not respond to just one factor.
It responds to multiple factors simultaneously.
And right now, some of those other factors are working strongly against gold, and these factors are so strong that even a war scenario is not able to support the gold price
Let me take you through these factors one by one.
2. Reason Number One — The war has pushed oil prices up
When the US-Iran conflict escalated, oil prices shot up sharply.
This was expected because Iran is one of the world’s major oil producers, and any conflict in the Gulf region raises fears about the oil supply being disrupted.
Higher oil prices mean higher costs for everything — petrol, diesel, transport, manufacturing, food, etc.
In short, it means the inflation rate is going up.
Now here is where it connects to gold.
When inflation is high, the RBI has to think very carefully before adjusting the interest rates.
But more than the action of our RBI, the gold price is more sensitive to the action of the US Federal Reserve.
Throughout 2025, investors all over the world were hoping and expecting that the US Fed would start cutting interest rates.
This expectation was one of the big reasons gold had been rising so strongly to date. Why?
Lower US interest rates would have made gold more attractive for investors. Instead of investing in US Bonds, investors would have diverted their money to Gold for better returns.
But now, with oil prices rising and inflationary fears coming back, those expectations are being pushed back. Under inflationary concerns, the Fed is very unlikely to reduce the interest rates.
Every time investors see an environment of rising interest rates, gold prices fall.
3. Inflation & Gold Price
Let’s understand in more depth how inflation and interest rates affect the gold price across the world.
We know that gold does not pay us any interest. To understand this, let’s take an example.
Suppose you have Rs 10 lakh to invest.
- On one hand, you can put it in a fixed deposit with a good bank and earn interest at about 6.5% percent per year.
- This 10-lakh FD can earn you a guaranteed interest each year of about Rs 65,000.
On the other hand, what will happen if you buy gold worth Rs. 10 Lakhs?
- Your stock of gold can fetch you no dividend, no interest, nothing.
- You are simply holding and hoping that the price of gold goes up.
This sounds simple and logical right now, but imagine yourself with those Rs. 10 Lakhs and Rs. 65,000 interest earnings.
That additional cash flow is a great emotion-comforter. Moreover, you can also reinvest those extra cash flows for better returns.
Now, in this frame of mind, suppose the interest rates go up. In this situation, the fixed deposit option looks even more attractive.
When interest rates go up, large institutional investors who manage thousands of crores of rupees start moving a part of their money from gold toward interest-bearing assets (like bonds or bank FDs)
This is not a small amount we are talking about. When global funds shift even a small percentage of their allocation, it moves markets significantly because their cumulative small percentages are also worth thousands of crores.
This is exactly what is happening right now.
US interest rates are not going to fall now due to oil inflation concerns, etc. In this case, the opportunity cost of holding gold will be too high.
So, in this situation, some investors would delay their plan to buy gold. Some investors might even sell gold to buy high-interest-bearing bonds or FDs.
This is what is causing the gold price to fall even in a war-stricken world.
4. Reason Number Two is – the US Dollar has become stronger
This is a point that many people in India may not relate to it completely, because domestically we do buy/sell gold only in Indian Rupees.
But Gold is priced globally in U.S. dollars.
Even when we buy gold in India and pay in rupees, the underlying price of gold is determined in US Dollars in the international market.
So when the US Dollar becomes stronger, the price of gold in USD often falls. Why?
Because when the US Dollar is strong, global investors — say from Europe, from China, India, from the Middle East — find gold more expensive in their own currency.
Hence, the demand for gold falls, and its price moves downward.
Now, let’s also understand why the US dollar is getting stronger.
When US interest rates are expected to stay high, investors from all over the world move their money into US Bonds to earn that higher return – US bonds are considered the safest asset as of date.
US Bonds can be purchased only in U.S. dollars. It means the demand for the US Dollar goes up… and more demand for the Dollar makes the Dollar stronger.
So you can see this chain:
- oil prices rise →
- the inflation rise →
- then Fed increases the interest rate →
- people start buying US bonds →
- this make the US Dollar stronger →
- A stronger US Gold lowers the demand for gold →
- Lower demand forces the gold price to fall.
This is what is happening right now, even in a war-like situation.
So you can see, oil price inflation is causing the gold price to fall.
5. Should we be worried about our gold holdings?
My honest answer is — NO, not if you are a long-term investor. Let me tell you why.
The correction we are seeing right now — from around Rs 1.70 lakh to around Rs 1.62 lakh – is a 7 to 8% fall.
It feels significant because it happened so quickly. But in the context of where gold has fallen from, I still think that it is well within the range of a normal, healthy correction.
More importantly, the reasons that drove gold higher are still very much in place.
- Central banks across the world, including our RBI, have been buying gold aggressively over the last two to three years.
This is a structural shift that is happening with all major economies of the world. These days, countries like India, China, Germany, etc., want to reduce their US Dollar dependency, and gold is what is replacing the US Dollar Reserves.
I don’t think that this US Dollar to Gold-shift trend is going to reverse.
Moreover, global uncertainty is not going away.
- Russia Ukraine war is not stopping.
- Iran is not going to forget the US attack any time soon.
- This will have a serious effect on Crude oil and Gas prices.
- In the long term, these will push more people away from the US Dollar and towards gold.
In these situations, Gold remains one of the most reliable long-term stores of value.
This narrative is not going to go away; in fact, it will become stronger and stronger as people like Donald Trump stay in the helm of affairs.
6. What does this mean for people like us?
If you have already invested in gold, I think there is no reason to panic or sell. We must remember that we are holding a long-term asset.
Short-term corrections of 7 to 10 percent are part of the normal cycle.
If you have been waiting to add gold to your portfolio and felt the price was too high at Rs 1.70 lakh, the current correction to around Rs 1.60 lakh levels is worth paying attention to, right?
Though I would personally wait for the gold price to dip even lower to about Rs. 1.4 Lakhs levels.
Have a happy investing.
