Gold Falls Below $4,100: Why Has the "Safe Haven King" Lost Its Touch?

How does the strengthening of the US dollar become the core driver of gold’s decline?

On March 23, gold experienced a “black” Monday: spot gold fell below $4,100 per ounce, dropping nearly 9% intraday, reaching its lowest level since late November 2025.

That morning, the Shanghai Gold Exchange issued a notice stating that recent market instability factors have increased, causing significant volatility in precious metal prices. Member units are advised to closely monitor market changes, prepare detailed risk contingency plans, and maintain market stability. Investors are also reminded to exercise risk awareness, control positions reasonably, and invest rationally.

With ongoing escalation of Middle Eastern geopolitical conflicts, a time when risk aversion should be high, why did traditional safe-haven asset gold experience a sharp plunge?

In fact, since March 2026, international gold prices have been undergoing a deep correction.

On March 18, London gold prices fell 3.86% to $4,813.53 per ounce; on March 19, they dropped another 3.39% to $4,650.50 per ounce, briefly falling to around $4,500. Domestic markets also declined; by the close of the March 19 night session, the Shanghai Gold main contract (2604) fell to 1,026.74 yuan per gram, a daily drop of 4.99%, nearly erasing all gains for the year.

Guoxin Securities’ analysis report points out that the deep correction in gold is mainly due to two reasons: First, geopolitical tensions have strengthened the dollar, becoming the main factor suppressing gold prices. The conflict between the US and Iran erupted and escalated in key oil-producing regions in March, causing oil prices to surge sharply. Market demand for the dollar increased significantly, with the dollar index breaking above 100, making it the strongest safe-haven asset and directly exerting downward pressure on dollar-denominated gold. Meanwhile, rising oil prices have heightened global inflation concerns. The Federal Reserve’s March policy meeting signaled a hawkish stance, not only pausing rate cuts but also raising inflation expectations. Market expectations for rate cuts were significantly revised downward, increasing the opportunity cost of holding non-yielding assets like gold and further weakening its appeal.

The second reason is liquidity squeeze and gold’s risk asset characteristics, which amplified the price decline. The US-Iran conflict triggered turbulence in global equity markets, with markets like South Korea’s triggering circuit breakers. High-leverage investors, in need of margin calls, were forced to liquidate profitable gold positions, creating short-term selling pressure. Additionally, during its previous rally, gold accumulated substantial speculative capital, shifting pricing power from central banks to speculative capital, making it temporarily highly correlated with US stocks as a risk asset. This led to a rush to close long positions. Furthermore, global central banks’ gold purchases slowed at the start of 2026; some, like Poland and Russia, even sold gold, weakening demand support for gold to some extent.

“After a strong rally, a technical correction was inevitable,” said Su Jian, Professor at Peking University’s School of Economics and Director of the National Economic Research Center. “Gold rose from around $2,600 at the end of 2025 to over $4,800 in early March 2026—an increase of over 80% in less than four months. The market accumulated a large amount of profit-taking. Once key support levels were broken, algorithmic trading and stop-loss orders triggered a cascade effect, accelerating the decline.”

“From a geopolitical perspective, the outlook for Iran war has become clearer, and Middle Eastern tensions are easing. After the expiration of Trump’s ‘48-hour final ultimatum,’ Iran, through multiple negotiations, agreed to resume transit through the Strait of Hormuz under certain conditions, without actual military conflict. The market’s previous risk premium for a ‘full-scale Middle East war’ was quickly unwound, and geopolitical panic significantly subsided,” Su Jian explained.

Despite recent continuous declines in gold, Yao Yuan, Senior Investment Strategist at Dongfang Huili Asset Management’s Asian Research Institute, believes that short-term liquidity squeezes will not change the long-term allocation logic of gold. It is necessary to distinguish between short-term volatility and medium- to long-term prospects.

Yao Yuan analyzed that, in the short term, geopolitical conflicts and the resulting energy price shocks are the main drivers of global risk-off trading. In this environment, investors tend to cash out their portfolios. To raise funds, they often reduce holdings across all assets, especially those that have performed well recently. Under this trading logic, selling pressure impacts gold. Thanks to a strong rebound in the first two months of this year, gold remains one of the best-performing assets so far this year; however, the buying side mainly benefits the US dollar (especially cash, not government bonds).

“However, over a longer cycle, gold’s historical performance in resisting geopolitical, macroeconomic, and policy risks is well documented. This has been true in the 1970s, the 2000s, and since 2018,” Yao Yuan said.

Regarding gold allocation strategies, Yao Yuan mentioned that some investors are proposing a new approach: a 60/20/20 split—60% stocks, 20% bonds, 20% gold. Although 20% gold may seem aggressive, in the context of global central banks’ gold-buying spree and low allocations by private sectors, gold still has significant upside potential. This is not a short-term trading recommendation but a long-term strategic allocation to adapt to structural changes.

“In a world that is more risky, fragmented, and multipolar, gold remains one of the few effective tools for portfolio diversification,” Yao Yuan concluded.

(Author: Li Xiaodan)