LIVE MARKETS-Why gold isn't acting like a safe haven in Iran conflict
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WHY GOLD ISN'T ACTING LIKE A SAFE HAVEN IN IRAN CONFLICT
One of the biggest surprises in markets during the Iran war has been gold's XAU= weakness, writes Deutsche Bank macro strategist Tim Baker. Long seen as a haven against geopolitical turmoil, the metal is down about 17% since the war started, underperforming U.S. stocks, global equities, and even most major currencies.
The divergence has been especially pronounced in recent days, with gold breaking sharply away from the broader "war trade" that has tracked oil prices. (Stocks and bonds as well have been moving inversely to crude prices.)
For years, gold was easy to read, Baker notes. For 15 years before 2022, prices moved closely with U.S. real yields, with a negative correlation of 87%. When real yields rise -- typically measured using the 10-year Treasury Inflation-Protected Securities (TIPS) yield -- holding gold, which is a non-yielding asset, becomes relatively less attractive because its opportunity cost increases.
That relationship broke in 2022, when gold held firm, instead of falling, despite a surge in yields during the Federal Reserve's hiking cycle. Gold then rallied strongly into early 2025.
Part of the explanation for that breakdown in correlation, notes Baker, is that the yellow metal became a one-way trade. Structural demand and momentum fostered a belief that "it just goes up," says Baker. But once the trend is stripped out, traditional drivers still matter, he adds.
"De-trended" gold prices remain negatively linked to short-term U.S. yields and have also tracked emerging-market equities—suggesting gold has at times behaved more like a leveraged risk trade than a pure safe haven, writes Baker.
"Gold may be part of a trend of investors shifting away from well-held, highly valued assets (like U.S. stocks), and into other positions that may involve leverage."
By late February, he notes that gold looked more than 15% overvalued on simple models. After the recent selloff, that excess has largely disappeared.
With positioning cleaner and other safe havens facing their own challenges, gold may be closer to finding a base—even if its shine has dulled for now, Baker says.
(Gertrude Chavez-Dreyfuss)
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