Many investors who buy physical gold assume that armed conflicts will inevitably push gold prices higher. Yet there are no absolute rules in markets. Whether physical gold prices can fall is a realistic question every gold investor must face. Gold price movements are driven by multiple factors, and wars are not always bullish. The current US‑Iran stand‑off has shown counter‑intuitive patterns: gold weakened even as tensions escalated. Understanding the underlying logic helps investors avoid misjudgments caused by inertial thinking.

I. When Are Gold Prices Prone to Decline?

Will physical gold prices fall? The answer is yes. When US real interest rates rise and the US dollar strengthens, gold’s appeal as a non‑interest‑bearing asset fades, triggering sustained downward pressure. Gold can also decline when global risk appetite improves, central banks tighten monetary policy, large‑scale gold ETF sell‑offs occur, or geopolitical risks ease. When multiple bearish factors coincide, physical gold may suffer substantial price drops beyond short‑term corrections.

II. War Driving Gold Higher Is Conventional Market Wisdom

Historically, most large‑scale wars have lifted gold prices. Conflicts fuel geopolitical instability and concerns over currency credibility, prompting capital to flow into gold for safe‑haven purposes and boosting its risk premium. Such rallies usually take place amid full‑blown crises and severe disruptions to global supply chains, where panic‑driven safe‑haven demand dominates while interest‑rate factors become secondary. This gives rise to the old saying “Buy gold in troubled times”.

III. Logic Behind Gold Behaving as a Risk Asset During US‑Iran Tensions

The current US‑Iran stand‑off presents an anomaly: gold fell as tensions escalated. Higher oil prices stoked inflation expectations, leading markets to price in prolonged high interest rates or even renewed Fed rate hikes. Bearish interest‑rate forces overwhelmed safe‑haven buying. Capital favored US dollars and Treasury bonds instead, and gold was sold off as a risk‑linked asset. In addition, part of the safe‑haven premium had already been priced in beforehand; profit‑taking after conflict developments further weighed on gold, breaking the long‑held assumption that gold always rises during wars.

In short, the answer to whether physical gold prices can fall is clear. Wars are no guaranteed safety net for gold. Geopolitical conflict is merely one variable among many; interest‑rate and US‑dollar dynamics often carry greater weight. Investors should not rigidly follow the old rule of “buy gold when war breaks out”. Instead, analyze the broader macro backdrop and rationally acknowledge price‑volatility risks for physical gold.

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