Gold’s muted reaction to the latest Middle East conflict is challenging one of the oldest assumptions in financial markets: that geopolitical crises automatically trigger sustained rallies in the precious metal.

After military strikes by the United States and Israel against Iran on Feb. 28, spot gold initially surged from $5,296 to $5,423 per troy ounce as investors moved into traditional safe-haven assets. The move followed the classic pattern seen during geopolitical shocks, when investors seek protection in assets perceived to hold value during periods of instability.

But the rally proved short-lived.

Within days, a sharp sell-off pushed prices down more than 6% to around $5,085 by March 3. Since then, the metal has traded largely sideways, fluctuating between roughly $5,050 and $5,200 an ounce. Spot gold was last seen around $5,175.

The lack of sustained momentum comes even as tensions continue to escalate across the region, including threats to shipping routes in the Strait of Hormuz, one of the world’s most important energy corridors.

Market analysts say the restrained response reflects a powerful counterforce: tightening global financial conditions. Ross Norman, chief executive of precious metals research platform Metals Daily, said a stronger U.S. dollar and rising yields on U.S. Treasury securities are offsetting the geopolitical risk premium that typically supports gold.

Higher bond yields increase the opportunity cost of holding bullion because gold does not generate interest or dividends. As government bond yields rise, institutional investors often shift capital toward income-producing assets.

Norman also warned that rising oil prices could reinforce that dynamic. Any prolonged disruption to energy shipments through the Strait of Hormuz could drive up crude prices, fueling inflation and forcing central banks to maintain tighter monetary policy for an extended period.

Higher interest rates historically place downward pressure on gold prices.

“Gold and silver’s price movements look lackluster just now, but perhaps that’s the way to feel after some epic moves over the last few months,” Norman said.

The recent volatility itself may also be weighing on investor sentiment. Gold experienced large price swings earlier this year as geopolitical tensions, central bank buying, and speculative trading pushed prices to record highs. Some institutional investors have since become more cautious about adding exposure to bullion while markets remain unstable.

Another explanation lies in the mechanics of financial markets during periods of stress.

Amer Halawi, head of research at Al Ramz Capital, said that geopolitical shocks can initially trigger broad-based selling across multiple asset classes as investors scramble to raise liquidity.

“If there is a liquidity crunch, everything would be sold until people make sense of this and the right assets get refocused,” Halawi said.

“Traditionally, when there is a shock, even gold sells off and picks up later.”

Such “liquidity flushes” are common in global markets. During the early phase of major crises, investors may sell even defensive assets like gold to meet margin calls, cover losses in other markets, or increase cash holdings.

Only after that initial wave of selling subsides do safe-haven flows typically reassert themselves. The current market dynamics also reflect the growing influence of macroeconomic forces on gold prices.

The metal’s performance in recent years has been increasingly shaped by factors such as currency movements, central bank policy, and global liquidity conditions, rather than geopolitical developments alone.

A stronger dollar, for instance, tends to suppress gold prices because the metal is denominated globally in U.S. currency. When the dollar rises, gold becomes more expensive for buyers using other currencies, reducing demand. At the same time, higher bond yields can attract capital away from commodities and into fixed-income markets.

Despite the short-term volatility, many analysts remain bullish on gold’s longer-term outlook. Central bank demand for gold has surged in recent years as countries diversify their reserves and seek alternatives to dollar-based assets. Several emerging-market central banks have been among the largest buyers, supporting the metal’s structural demand.

Major financial institutions continue to forecast further price gains. JPMorgan Chase expects gold to climb to around $6,300 per ounce by the end of 2026, while Deutsche Bank has maintained a price target of roughly $6,000 by year-end.

Those projections indicate that expectations that persistent geopolitical tensions, elevated global debt levels, and long-term inflation risks will continue to underpin demand for safe-haven assets. In that context, gold’s current sideways movement may not signal fading interest in the metal so much as a pause after an extended rally.

If the Middle East conflict deepens or global financial conditions shift, particularly if interest rates begin to decline, analysts say gold could regain its upward momentum.