Market News

BY Madeleine Ross

Gold is a sure-fire bet to protect against uncertainty. When everything else is falling, gold rises. At least, that’s the received wisdom.

But ever since the US and Israel launched a series of unexpected strikes on Iran, gold has fallen in value. As the conflict worsened and dragged more countries in the region into the fray, the metal fell further. And now the Strait of Hormuz is effectively closed, trapping a fifth of the world’s oil and gas, gold is losing its lustre.

From a peak price of $5,415 (£4,051) as the war began, gold has been on a steady decline. On Monday March 16, gold briefly crossed below $5,000, before settling. But on Thursday March 19, the metal dropped significantly, losing 10pc in a single day to hover just above $4,500.

Broader markets reacted almost immediately to that morning’s Iranian bombing of the world’s largest gas plant in Qatar, alongside a refinery in Saudi Arabia, falling dramatically.

Fears that an energy inflation shock could be more severe and last much longer than previously thought has seemingly driven a sharp change in investor behaviour.

Oil prices jumped above $111 a barrel on Thursday – up 53pc since the end of February – and there are serious concerns that Brent crude could hit $200.

This has all meant that gold has not been the safe haven it is generally thought to be.

The metal began this crisis in a bad place, with its price already overextended, having broken several records in the first two months of this year.

It had already corrected once this year, with a heavy decline at the end of January, but recovered quickly.

“It hasn’t been quite that safe haven asset that one might have expected,” said Darius McDermott, of Chelsea Financial Services.

One reason for this is that investors are chasing liquidity – common at the start of crises, when being able to react quickly to opportunities and risks is valued very highly.

But why sell gold? It’s a broad and deep market that is filled with investors of all sizes, from the smallest retail investor to the largest institutions, meaning there is always a buyer somewhere.

“Gold is one of those assets that is actually quite easy to dispose of,” Rob Morgan, of Charles Stanley Direct, said.

“A lot of people have been long gold, a lot of people have accumulated gold, especially in Asia, and that includes central banks as well. In a crisis, you get a bit of an unwind of what’s done well.”

But because many investors already held gold, there’s limited scope for new safe haven seekers, subduing the price – and given gold’s glittering run in recent years, many are taking profits from their best performing asset.