When bombs
fall, conventional wisdom says buy gold. So why is everyone selling?
The old norm in
financial common sense has been: when the world pivots towards chaos, investors
flock to “safe” assets such as Gold. In recent years, Cryptocurrencies such as
Bitcoin known as digital gold were also coined as a relatively safer asset. When
missiles fly, investors hedge accordingly.
Then came
February 28, 2026.Within hours of coordinated US and Israeli strikes on Iran
triggering the closure of the Strait of Hormuz, something strange happened.
Gold, which was
trading at all-time highs of $5,600 an ounce, began to fall, not dip. By late
March, it was down 17–19%- its worst monthly performance since 1983. Bitcoin,
which dipped toward $63,000 on the first weekend, never quite found its footing
back. The safe haven playbook, refined over decades of crises, appears to have
stopped working.
What happened?
The short answer: this war broke the rules because it isn't the kind of war
gold was built to survive.
Every major
crisis that sent gold soaring, the 1973 oil embargo, the 2008 financial crash,
Russia's invasion of Ukraine shared a common element: collapsing confidence in
the financial system, falling interest rates, or a weakening dollar. Investors
rushed to gold because of uncertainty, gold held its value when paper assets didn’t
throughout history.
The Iran war
delivered something different. The Hormuz closure sent oil prices past $100 a
barrel within two weeks, a gain of over 50% from pre-war levels. That kind of
energy shock doesn't just raise prices at the pump, it reignites inflation,
forces central banks to hold interest rates higher for longer, and strengthens
the US dollar- the world’s reserve currency. And oil is priced in dollars and
energy hungry nations scramble to acquire them.
Here lay the
trap. Gold is a non-yielding asset, it paid no interest or earn dividends. When
real interest rates rise and the dollar strengthens, gold becomes structurally
less attractive. Investors with cash can park it in short-term Treasury bills
earning real returns and no longer need to bother with bullion.
The very
mechanism that was supposed to send gold soaring: a major Middle East conflict
ended up creating the exact macro conditions that punish it.
There is another
dimension to this that rarely gets discussed in polite financial commentary:
panic is indiscriminate.
When leveraged
positions go wrong, when oil stocks rocket and bonds collapse simultaneously, fund
managers don't get the luxury of selling their worst performers first. They
sell whatever is liquid enough to move quickly and large enough to matter.
Gold and
Bitcoin, despite their flaws, are among the most liquid assets on earth. They
can be sold at 2am on a Saturday, exactly when this war began.
As analysts at
Intesa Sanpaolo put it evidently: the sell off in gold and silver in the early
weeks of the conflict was driven, by a "quest for liquidity." Margin
calls doesn’t care about financial thesis.
Around $300
million in crypto positions were liquidated in just the first weekend. Gold's
COMEX futures saw volumes spike as institutional investors sold quickly to
raise cash.
If gold's story
is one of macroeconomic betrayal, Bitcoin is of an identity crisis.
The
"digital gold" coinage had a flaw: Bitcoin doesn't actually behave
like gold. It behaves as a high volatility technology stock with a liberating
origin story. Research has consistently shown during periods of genuine market
stress such as COVID in 2020, the 2022 rate-hiking cycle, Bitcoin's correlation
with equity markets spiked dramatically. It falls with risk assets, not against
them.
The war
confirmed this pattern. As institutional investor funds flooded into Bitcoin
ETFs over the past two years, the asset has now become deeply embedded in the
same risk management frameworks as equities- something the founder of Bitcoin
exactly wanted to break out of.
When compliance
desks demanded cuts in overall portfolio volatility, Bitcoin was trimmed
alongside equities and long-term bonds. Its reputation as a hedge didn't matter,
only its position and performance in the portfolio did.
None of this
conclusively indicates gold is broken as a long term store of value, or that its
safe-haven story is dead. Gold's long-term case is currently driven by central
bank demand, fiscal deficits, and distrust of fiat currency remains intact.
Bank of America and other analysts still projects prices well above current
levels over the coming year, most expecting it to end the year around the
$6,300 per ounce range.
But this
experience offers a lesson for investors who rely on simple educated guesses
that, "War means buy gold" is not really a law of physics. Rather, it
is a pattern, one that holds when war triggers financial collapse or currency instability,
and breaks when war triggers a global oil shock that boosts inflation and
strengthens the dollar.
The markets
today are not behaving irrationally, they are responding to a very specific
kind of crisis with cold logic that, once you understand it, is actually
coherent. The tragedy is that millions of ordinary investors holding gold and
crypto as an insurance are learning this hard lesson in real time, watching
their "safe havens" bleeding while oil sector betters/investors post
record profits.
In an
increasingly interconnected world of global finance, the wisest investors read
the fine print, not just the chapter headings.
Written by:
Shafqat Aziz
Barrister (Lincoln's Inn)
LLM Corporate Law, NTU
Industry & Alumni Fellow, NTU
PGDL, UWE Bristol
LLB, BPP University
Accredited Civil-Commercial Mediator (ADR-ODR International)
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