Gold and Silver Prices Plunge: Why Has Safe-Haven Demand Faded Amid Iran War?

Gold prices have retreated sharply in recent weeks, falling nearly 25% from their January record highs, even as the Iran war continues to cloud the global economic outlook. The metal, which peaked at $5,602 at the end of January, has dropped to a low of $4,100 and is currently trading around $4,500, marking one of the most notable reversals in recent memory.

The pullback comes despite a backdrop that would typically favour safe-haven demand. However, markets have shifted focus from long-term geopolitical risk to immediate macro pressures, particularly rising oil prices and renewed inflation concerns. As energy costs climb, investors are increasingly prioritizing liquidity and yield over traditional defensive assets.

This dynamic has been reinforced by a stronger US dollar and a sharp rise in bond yields.

Higher oil prices linked to the Iran conflict have pushed inflation expectations upward, leading markets to scale back expectations for Federal Reserve rate cuts and, in some cases, to price in the possibility of tighter policy for longer. As a result, the opportunity cost of holding non-yielding assets such as gold has increased significantly.

The decline has also been exacerbated by positioning. Gold’s strong rally in 2025—when it surged more than 60%—attracted substantial leveraged inflows via futures and exchange-traded products. The recent correction has triggered a rapid unwinding of these positions, with margin calls accelerating the sell-off and reinforcing downside momentum.

Silver has followed a similar trajectory, though with greater volatility. After reaching an all-time high of $121 in late January, the metal has fallen by roughly 50% to lows near $61 and is currently trading around $70. While silver’s industrial demand—driven by sectors such as solar energy, electronics and electric vehicles—remains supportive over the longer term, it has not been enough to offset the impact of rising yields and dollar strength in the near term.

The current environment highlights a shift in market behaviour. Rather than a traditional flight to safe-haven assets, investors are engaging in a “flight to liquidity,” favouring cash and yield-generating instruments amid tightening financial conditions and elevated uncertainty.

Market Outlook

Gold’s near-term direction will remain closely tied to US dollar strength, bond yields, and expectations for Federal Reserve policy. If inflation pressures persist and yields continue to rise, further downside cannot be ruled out, particularly if leveraged positions continue to unwind.

However, sustained geopolitical risk and structural central bank demand may provide a floor over the medium term. Silver is likely to remain more volatile, with its dual role as both a precious and industrial metal amplifying moves in either direction.