"I thought gold was the safest bet when war breaks out—wasn't that the case?"
As global financial markets reel from escalating tensions between the U.S., Israel, and Iran, gold—widely considered a safe-haven asset—has instead weakened. Some gold-related exchange-traded funds have posted negative returns recently, prompting analysts to question whether the conventional wisdom that "gold thrives in crisis" still holds.
War Erupts, Yet Gold ETFs Post Losses
Since the U.S. airstrike on Iran on April 28, major gold ETFs have shown lackluster performance with gains or losses hovering around 1%, according to Korea Exchange data as of May 6.
Among domestic gold ETFs, ACE KRX Gold Spot—the largest by assets—rose 0.89%, while KODEX Gold Active and SOL International Gold gained 1.18% and 0.92%, respectively.
However, ETFs tracking international gold futures declined. TIGER Gold Futures(H) and KODEX Gold Futures(H) fell 1.59% and 1.57%, respectively—lower than pre-conflict levels. HANARO Global Gold Mining ETF, which invests in gold mining companies, dropped 7.51%.
U.S.-listed gold ETFs followed a similar pattern. SPDR Gold Shares (GLD) fell 3.64% this month, while iShares Gold Trust (IAU) declined 3.58%.
The weak ETF performance reflects falling international gold prices. Gold futures on the Singapore International Futures Exchange traded at $5,134.60 per troy ounce on May 6—approximately 2.1% below the $5,247.90 level recorded on April 27, just before the U.S. airstrike. This marks a stark departure from gold's typical rally during geopolitical crises.
Rate Outlook Shift and Dollar Strength Weigh on Gold
Financial industry analysts cite three main factors behind gold's underperformance.
The most significant is the shifting outlook for U.S. interest rates. War-driven oil price surges have fueled expectations that the Federal Reserve may delay rate cuts. West Texas Intermediate crude futures have risen approximately 20% since late last month.
Rising oil prices push consumer prices higher, intensifying inflationary pressures. Since gold pays no interest, it becomes less attractive relative to yield-bearing assets like bonds in a high-rate environment, creating downward pressure on prices.
Dollar strength is another factor suppressing gold prices. The Dollar Index (DXY), which measures the greenback against six major currencies, reached 99.068 on May 6—up 1.31% over the past week. Investors are reducing risk assets and accumulating dollar cash holdings.
"The dollar is rising, but funds aren't flowing into other assets," JP Morgan analysts said. "This indicates growing short-term cash demand in the market."
Gold Behaves More Like Investment Asset Than Safe Haven
Analysts also point to gold's evolving character as an investment asset rather than a traditional safe haven. Gold prices surged approximately 65% last year alone. While safe-haven demand once dominated gold investment, speculative demand through ETFs seeking returns has grown substantially.
According to the World Gold Council, global gold ETF holdings increased by 222 metric tons in the third quarter of last year compared to the same period a year earlier—roughly matching central bank purchases during that period.
Industry analysts note that profit-taking now triggers increased volatility whenever gold prices reach certain levels.
"Precious metals fell sharply due to dollar strength and rising Treasury yields," said Ok Ji-hoe, a researcher at Samsung Futures. "Since the sharp selloff following Kevin Warsh's nomination as the next Fed chair, gold's safe-haven status has weakened. Precious metals now respond more sensitively to monetary policy expectations and dollar strength than to risk-aversion factors."