Why Did Gold Fall After Iran War? JPMorgan: In the Early Stages of Market Turmoil, Gold is Often Sold Off First, Then May Quickly Rally

Since the outbreak of conflict in Iran two weeks ago, gold prices have not risen but fallen, declining approximately 6% from pre-war levels, sharply increasing market doubts about its safe-haven properties.

According to Chase Trading Desk, in a systematic analysis of a commodities research report released by JPMorgan on March 13, gold was “sold off en masse” during the initial surge of market pressure—a well-documented historical pattern—rather than signaling a failure of its safe-haven function. Historical data shows that this early correction often presents a tactical buying opportunity, with gold prices typically rebounding quickly within the following several trading days and regaining lost ground.

JPMorgan points out that the current gold sell-off is driven by multiple factors: soaring energy prices raising inflation expectations, which significantly dampen expectations for Fed rate cuts; coupled with a rapid rebound in the dollar, creating a recent direct negative backdrop. However, the bank believes the primary driver is widespread de-risking triggered by increased stock market volatility—when the VIX index remains high and continues to climb, investors, under pressure from margin calls, portfolio rebalancing, and VaR shocks, are forced to liquidate risk across all asset classes, with gold holdings suffering first. Last week, global gold ETF holdings saw a noticeable outflow.

In the short term, JPMorgan warns that gold may still face further downside, especially if stock markets price in a worsening global economic outlook more aggressively, triggering another wave of de-risking. Continued digestion of Fed rate cut expectations by the interest rate markets could also add further pressure. However, the bank emphasizes that the longer energy disruptions last and the more substantial their impact on inflation and economic growth, the more likely it is that the macro environment for gold will “shift rapidly and significantly to the upside,” with a dovish Fed response further amplifying this trend.

According to JPMorgan’s latest price forecasts, the bank maintains a strong bullish outlook on gold, projecting an average price of $5,100 per ounce in Q1 2026, rising to $5,530 in Q2, $5,900 in Q3, and further climbing to $6,300 in Q4.

“Full-scale sell-off”: Gold cannot escape the de-risking wave

JPMorgan’s analysis shows that the initial sell-off of gold during market stress is a pattern supported by historical data. Weekly data since 2006 indicates that when the VIX index is high (30 and above) and rising, the average weekly return of gold turns negative—a unique characteristic among all VIX ranges, with only a 45% probability of gold rising during the same period.

The logic behind this pattern is that, during sudden market stress, investors face multiple constraints such as margin calls, portfolio rebalancing, and VaR shocks, forcing them to reduce risk exposure across asset classes to improve liquidity. As a highly liquid asset, gold is often among the first to be sold. Meanwhile, high VIX levels tend to coincide with an asymmetric strengthening of the dollar, which also exerts additional downward pressure on dollar-denominated gold prices.

JPMorgan also notes that the risk premium from geopolitical conflicts tends to have a very short-lived effect on gold, often manifesting as “buy the rumor, sell the fact” dynamics. This explains why, after the outbreak of conflict in Iran, gold prices failed to sustain an upward momentum.

Historical pattern: brief initial selling pressure, rapid and substantial rebound

Historical data further reveals that declines in gold driven by de-risking are usually short-lived, with subsequent rebounds being swift and significant. JPMorgan analyzed 25 independent instances since 2006 when the VIX first closed above 30: the selling pressure was most concentrated in the first two trading days after the breakout, with an average decline of about 0.5%; but from the third trading day onward, gold prices showed a sustained and noticeable rebound; by the fourth day, prices had recovered all losses and surpassed pre-breakout levels; and by around the tenth day, the average peak-to-trough increase exceeded 2%.

Notably, in 22 of these 25 cases, the VIX fell back below 30 within approximately 10 to 15 days. JPMorgan emphasizes that the direction of VIX movement is crucial—under high and declining VIX conditions, gold has historically performed most strongly, contrasting sharply with its weakest performance when VIX is high and rising, highlighting the importance of VIX trend as a short-term tactical signal for gold prices.

The bank also warns of tail risks: during the 2008 global financial crisis, 2011, and the COVID-19 pandemic in 2020, VIX remained elevated for extended periods, and gold’s rebound process was prolonged or interrupted, representing exceptions to this pattern. Investors should remain cautious.

Longer-term bullish logic: inflation hedging and Fed policy shifts

JPMorgan believes that if the Strait of Hormuz blockade persists, over a longer horizon, gold will ultimately rise significantly, supported by two reinforcing reasons.

First is its inflation-hedging value. The bank reviewed five periods since 2000 when US CPI surged more than 2.5 percentage points rapidly: except for the post-2020 pandemic inflation cycle, the other four periods saw double-digit gains in gold, outperforming the Bloomberg Commodity Index (BCOM). The post-pandemic inflation was driven by demand shocks and supply chain constraints, with commodities overall rising far more than gold, representing a special case. JPMorgan suggests that if this oil price shock evolves into a stagflationary environment, gold’s inflation hedge value will become even more prominent.

Second is the expectation of a shift in Fed policy. JPMorgan’s economists note that moderate oil price increases tend to support the Fed maintaining steady rates; however, if oil prices continue to surge to $120 per barrel or higher, the risk of economic downturn will non-linearly intensify, with the labor market suffering substantial strain. Although overall inflation remains high, the transmission to core inflation will be relatively limited, and the Fed is likely to pivot toward easing due to its dual mandate of employment. JPMorgan emphasizes that once the Fed’s rate cut path accelerates, it will significantly boost the upward momentum of gold.