ROI-Gold flubs its lines amid Middle East mayhem: Mike Dolan

By Mike Dolan

LONDON, March 4 (Reuters) - The most peculiar market move in an alarming week of Middle East conflict was how the most obvious "safe haven" - gold - flubbed its lines. Instead of piling into gold, investors seemed to sprint for dollar cash, offloading anything that caught a speculative head of steam before last weekend's attacks.

Three days after Saturday's attacks on Iran, the initial bid for precious metals faded quickly. On Tuesday, there was a major reversal, with gold XAU= suddenly falling 4% and silver XAG= dropping as much as 10%.

A return of the dollar's long-lost "safety bid", which saw the greenback .DXY climb this week despite heavy losses in U.S. stocks and bonds, was cited as one basic reason for gold's reversal.

Both public and private funds in the Middle East region now facing Iranian retaliatory strikes may be opting for dollar liquidity. A spike in dollar-denominated oil and gas prices may also have spurred demand for cash in the world's reserve currency.

The main reason for the dollar rise, however, is most likely the hit to major European and Asian economies from a protracted energy supply disruption and price spike compared with the relatively insulated U.S.

Either way, a rebounding dollar takes the shine off gold.

But there are other possible reasons for gold's "no-show" so far this week.

One is gold's correlation with the Swiss franc CHF=. Both are traditionally the safest of safe havens in stressful times and get bid up in tandem - especially now that others such as Japan's yen and U.S. Treasuries have been neutralised as such in recent years.

But an extraordinary warning of franc-selling intervention from the Swiss National Bank on Monday quickly reversed the currency's gains against both the dollar and the euro. The resulting unwind of haven trades may have added pressure on gold.

AND THE FIRST SHALL BE LAST

A more prosaic explanation is that investors who loaded up on gold in a speculative frenzy - one that almost doubled its price to fresh records over the past year - are simply cashing out of their best-performing trades as risk and volatility rise.

That would tally, for example, with the sudden reversal of the year's best-performing stock market to date. South Korea's Kospi benchmark .KS11 fell more than 7% on Tuesday as Seoul returned from a holiday to reverse some of a near 50% year-to-date surge.

Gold and silver were the second- and third-best-performing major markets of 2026 before the strikes, behind the blockbuster Kospi, while Japan's Nikkei .N225 – up about 15% before the weekend - has since dropped more than 4%.

With volatility rising and another potential energy shock brewing for the global economy, many portfolios may simply be looking to increase cash and liquidity.

The fact that gold has not yet performed as a haven in that environment says a lot about the nature of the buying and the rally over the past year - and not least how it hinged heavily on the ongoing reversal of more than a decade of one-way dollar strength.

As IMF First Deputy Managing Director Dan Katz said on Tuesday, the dollar's behaviour this week shows its role as a haven persists and the U.S. currency remains the "heart of the international monetary system."

Gold may yet rise for other reasons. But if its recent parabolic climb was fuelled by doomsday narratives about the dollar's demise, then this week's moves may prompt a rethink.

(The opinions expressed here are those of the author, a columnist for Reuters.)

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