War in the Middle East Intensifies, but Gold Sells Off — Why?
After falling more than 4.38% in the previous session and briefly dropping below the $5,000 mark intraday, gold has rebounded today to around $5,169, recovering part of the losses from the prior trading day.
The sharp drop and subsequent rebound in gold prices over the past two days have also quickly transmitted to related ETFs. On March 3, the physically backed gold ETFs $黄金ETF-SPDR(GLD)$ and $黄金信托ETF-iShares(IAU)$ fell 4.46% and 4.44% respectively in a single session. Gold mining equity ETFs saw even larger declines, with $黄金矿业ETF-VanEck(GDX)$ dropping 8.76% and $小型黄金矿业ETF(Market Vectors)(GDXJ)$ falling 8.91%. Volatility was further amplified in leveraged products, as the triple-leveraged gold miners ETF $MicroSectors Gold Miners 3x Leveraged ETN(GDXU)$ plunged 26.06% in one day, while the double-leveraged $二倍做多黄金矿业指数ETF-Direxion(NUGT)$ fell 17.37%.
In today’s overnight session, these ETFs collectively rebounded. $黄金ETF-SPDR(GLD)$ and $黄金信托ETF-iShares(IAU)$ rose 1.08% and 1.12% respectively; $黄金矿业ETF-VanEck(GDX)$ gained 1.81% and $小型黄金矿业ETF(Market Vectors)(GDXJ)$ increased 2.07%. Among leveraged products, $MicroSectors Gold Miners 3x Leveraged ETN(GDXU)$ climbed 4.67% and $二倍做多黄金矿业指数ETF-Direxion(NUGT)$ advanced 3.37%.
The sharp fluctuations in gold prices during this period are closely linked to the sudden escalation of tensions in the Middle East. The United States and Israel launched military strikes on targets inside Iran, rapidly expanding the conflict. As the war entered its fifth day, both safe-haven demand and concerns over energy supply intensified, leading to increased volatility across global financial markets.
The central focus of the conflict has been the Strait of Hormuz. This strategic waterway carries roughly one-fifth of the world’s oil and natural gas shipments and is one of the most important energy transit routes globally. Following the outbreak of hostilities, traffic through the strait nearly came to a halt, raising serious concerns about potential disruptions to global energy supplies.
The risk to energy transportation quickly pushed international oil prices higher. Since the US-Israeli strikes on Iran began, crude oil prices have risen by more than 10%, with Brent crude trading around $82 per barrel. The rising energy risk premium has become a major driver of volatility across global asset markets.
Higher oil prices have also reignited concerns about inflation. Energy costs occupy an important position in global price structures, and sustained increases in oil prices could raise transportation and industrial production costs. As a result, markets are increasingly concerned that the earlier easing trend in inflation could reverse.
Changes in inflation expectations have directly affected expectations for monetary policy. With energy prices rising, investors have begun scaling back their bets on Federal Reserve rate cuts. Traders now estimate roughly an 80% probability that the Fed will cut rates more than once by 25 basis points this year, whereas markets had fully priced in two rate cuts only recently.
Higher interest-rate expectations have put pressure on gold. Since gold does not generate interest income, a prolonged period of elevated interest rates increases the opportunity cost of holding the metal, which is one of the key reasons behind the recent correction in gold prices.
At the same time, the US dollar has strengthened noticeably. A key gauge of the dollar has risen about 1.4% this week as capital flows back into dollar-denominated assets amid geopolitical tensions. A stronger dollar increases the cost of purchasing gold for investors using other currencies, which also weighs on gold prices.
Volatility in global equity markets also intensified the decline in gold. On March 3, major stock markets around the world broadly pulled back. Some investors sold gold and other assets to raise cash, either to meet margin requirements in equity positions or to add to stock holdings at lower prices. These portfolio adjustments further amplified the drop in gold prices.
Gold rebounded on March 4 largely following a policy statement from the United States. President Donald Trump said the US would provide naval escorts for oil tankers passing through the Strait of Hormuz and that the US International Development Finance Corporation would offer insurance guarantees to ensure the security of energy shipments.
Trump stated that the United States would ensure energy could flow freely to global markets, and that the US Navy would escort tankers through the Strait of Hormuz if necessary. The measure is intended to stabilize global energy supplies and prevent the Middle East conflict from triggering a broader energy crisis.
As expectations for safer shipping conditions improved, concerns about a severe disruption to global energy supply eased. Some capital therefore flowed back into precious metals, helping gold prices rebound after the sharp decline.
Related ETF overview:
$黄金ETF-SPDR(GLD)$ is the largest gold ETF in the world, with total assets of about $177.8 billion and a management fee of 0.40%. $黄金信托ETF-iShares(IAU)$ manages roughly $80.7 billion with a lower expense ratio of 0.25%, making it a lower-cost option among physically backed gold ETFs.
Among gold mining equity ETFs, $黄金矿业ETF-VanEck(GDX)$ manages about $33.6 billion in assets with an expense ratio of around 0.50%. $小型黄金矿业ETF(Market Vectors)(GDXJ)$ has approximately $11.2 billion in assets and charges about 0.51%, focusing mainly on small- and mid-cap gold mining companies.
Leveraged products tend to be more volatile. The triple-leveraged gold miners ETF $MicroSectors Gold Miners 3x Leveraged ETN(GDXU)$ manages about $2.9 billion in assets and charges a 0.95% management fee. The double-leveraged $二倍做多黄金矿业指数ETF-Direxion(NUGT)$ has roughly $1.3 billion in assets with a 0.75% expense ratio. $金矿指数二倍做多ETF(JNUG)$ , another double-leveraged ETF focused on junior gold miners, manages about $700 million in assets and also charges 0.75%.
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