Before I start, I would like to say a few words: war should always be condemned, no matter where it happens. Violence destroys lives, economies, and stability. I believe this conflict should be resolved through diplomacy.
Since the war began on February 28, financial markets have reacted in different ways. From an economic perspective, one interesting development is the behavior of gold prices.
Normally, during wars or geopolitical tensions, investors move toward safe assets. Gold is one of the most traditional “safe havens,” so we expect its price to increase.
However, after February 28, the ounce gold price has decreased, which appears unusual.
So, I did some research to better understand this situation. I would like to share these insights to help explain this unexpected movement.
First, let’s look at the gold price (USD per ounce) in the graph.
We can say that the gold prices were already increasing before February 28. The price has already reached the highest level before the war started.
After this point, instead of continuing to rise, gold prices started to decline.
Let’s find out the reasons.
1) Market Expectations vs Reality
Financial markets react to expectations, not only events. If the war was already expected, prices may have already adjusted before it started. The graph suggests that the market may have already reacted to the expected conflict earlier.
In other words, the impact of the war may have been “priced in” before it officially began.
2) Gold and the US dollar often move in opposite directions, especially in the short term.
Whether the FED decreases the interest rates, it is still high (3.75%) so this makes dollar-based assets (like US bonds) more attractive. For this reason, investors buy US dollars to invest.
The main reason is gold is priced in US dollars. Therefore, as US dollars get stronger, the global demand for gold decreases. It is getting more expensive for the investors who use other currencies.
At the same time, during uncertainty, investors do not only buy gold, they also buy US dollars. This option is also seen as a safe asset because it is backed by the world’s largest economy, widely accepted in global trade, and highly liquid. Investors can buy or sell it anytime.
3) Expectation of War
If markets believe the conflict will be limited or controlled, they may not buy gold by panic
4) Profit-taking behavior
Some investors may have already bought gold before the conflict. When uncertainty starts, they sell to take profit, which can push prices down.
Secondary Factor : Central Bank Activity
Another contributing factor may be central bank activity. In some cases, countries have sold part of their gold reserves to increase liquidity or stabilize their economies. This can add supply to the market and create downward pressure on prices. However, this effect is likely secondary compared to interest rates and the strength of the US dollar.
For example, after the war began on February 28, the Central Bank of Türkiye sold billions of dollars worth of gold, estimated at around 20–50 tonnes in a short period, to stabilize its economy. This increase in supply may have contributed to downward pressure on global gold prices.
Change in Turkish Central Bank’s gold reserves in tons.
This also created pressure in the market. For example, in Türkiye, many people tried to buy 1-gram gold for investment, since gold is a traditional safe asset. However, it became difficult to find, and some sellers were unwilling to sell at lower prices.
References
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