Gold Prices Remain Stagnant Despite Escalating Iran Conflict, Defying Safe-Haven Expectations

Kathmandu. As the conflict against Iran enters its 19th day on Wednesday, the price of gold, typically considered a safe investment during times of crisis, remains surprisingly stable.

The conflict has spread across the region since the US and Israel began attacking Iran on February 28, raising concerns about potential negative impacts on the global economy. On March 2, Ebrahim Jabari, a senior advisor to the Commander-in-Chief of Iran's Islamic Revolutionary Guard Corps (IRGC), announced the closure of the Strait of Hormuz, through which 20 percent of the world's oil and gas transit. Following this move, the price of crude oil surpassed $100 per barrel.

While the stock market has declined over the past two weeks due to the uncertainty of the war, the price of gold has remained steady.

• What is the price of gold?

The price of gold saw a decline in the Nepali market on Wednesday. According to the price list published by the Nepal Gold and Silver Dealers' Association, the price of gold dropped by 2,200 rupees per tola.

The association stated that hallmarked gold, which traded at 309,900 rupees per tola on Tuesday, is trading at 307,700 rupees today, Wednesday. Similarly, the price of 10 grams of gold has been set at 263,805 rupees.

Likewise, the price of silver also declined today. Silver, which traded at 5,335 rupees per tola on Tuesday, is trading at 5,150 rupees today after falling by 185 rupees. The association announced that the price of 10 grams of silver has been set at 4,415 rupees.

In recent days, the price of gold has stabilized around $5,000 per ounce. On Tuesday at 11:00 GMT, the price of spot gold was $5,001.36 per ounce. Furthermore, US gold futures for April rose by 0.1 percent to $5,005.20.

• Is this unexpected?

Yes. This rigidity in price is surprising because, during economic crises or global conflicts, investors increase their investment in gold to preserve their cash, causing its price to rise rapidly. For example, the price of gold skyrocketed when Russia fully invaded Ukraine.

According to Remi Bourjot, an economist at the French Institute for International and Strategic Affairs in Paris, the sanctions imposed on Russia at that time caused panic among central banks, and countries like China began buying large amounts of gold to reduce their dependence on the dollar.

However, the market has reacted differently to the US-Israel war on Iran.

• Why didn't the price of gold rise?

According to James Medway, a council member of the Progressive Economy Forum, investors are anticipating that the US central bank, the Federal Reserve, might stop cutting interest rates and instead raise them. Medway explained, 'When interest rates rise, dollar-denominated assets become more attractive. Gold yields no interest, so its appeal decreases compared to the dollar.'

Another reason is that the price of gold was already at a high point since the beginning of this year. According to Medway, 'The price of gold had already risen so much before the war that the current conflict has not been able to impact it further.'

Rebekah Christie, a Senior Fellow at the Bruegel think tank, considers the strengthening dollar as the main reason. Since gold is traded in dollars, when the dollar becomes more expensive, it becomes harder for investors to push the price of gold higher. Additionally, rising oil prices increase inflation, which ultimately makes the dollar even stronger and more attractive.

• Is gold still a safe investment?

Not for now. According to Bourjot, gold is not viewed as a hedge against uncertainty today compared to two years ago. He says, 'Gold has now become a highly speculative commodity. Large investors like central banks, which are risk-averse, might be frightened by this volatility in gold.'

• What is the future of gold?

Experts say it is difficult to predict amidst the uncertainty in West Asia. Christie says, 'The biggest factor currently preventing gold from rising further is its already high price.'

According to James Medway, two things must happen for a significant change in gold prices:

1. Federal Reserve Decision: If the new chairman appointed in May signals an interest rate cut despite inflation, the price of gold could rise.

2. Duration of the War: It is currently believed that this war will end quickly. If the war drags on and the damage increases, investors will once again be attracted to gold.

With the support of the agency