Is now a good time to invest in gold?
Gold prices fell following the outbreak of the conflict in the Middle East. Does that mean now is a good time to invest in gold?
Despite gold being prized among some investors because of its qualities as a store of value and a hedge against global instability, the tumultuous geopolitics of 2026 seem to have put the brakes on what had been a promising gold rally.
Gold enjoyed its best year since 1979 last year. The price of gold rose 64% through 2025, and kept going early in 2026, hitting an all-time high of $5,595 per troy ounce on 29 January.
But despite its safe haven appeal, gold prices started to fall as war broke out in Iran – and haven’t recovered since.
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Between 27 February, the last trading day before the Iran war started, and 26 May, the price of gold fell 14.4%.
Why has gold sold off like this, just when the kind of turmoil it is supposed to protect against is at its worst? And with that in mind, is gold still a good investment – or is it time to trim your gold holdings?
Why has the gold price fallen?
The point of safe haven assets is to provide a source of liquidity when it is needed.
As stock markets fell through the course of the Iran war, people of all types – traders, investors, and everyday consumers – cashed in what they could in order to cover the shortfall.
Gold was a prime candidate. It is a highly liquid asset, and its rapid gains last year and early in 2026 meant that there were profits to be made from selling it.
In the run-up to reaching all-time highs around $5,600 in January, a troy ounce of gold gained around $1,000 in about a month. “Normally, it takes years to gain $1,000 on gold,” said Nitesh Shah, head of commodities and macroeconomic research at asset manager WisdomTree.
A selloff from what Shah calls January’s “unsustainably high levels” had begun in February, but the fallout of the Iran war accelerated this.
“A traditional phenomenon in geopolitical shock events is that usually, when a shock event happens, gold prices initially fall,” said Shah. This happened after various historical stock market crashes, including 9/11 and the global financial crisis in 2008.
“The mechanism here is that gold is a liquid, cash-like investment. When there is stress in the market, people need to unlock that liquidity,” said Shah.
Gold prices are also being weighed on by higher US interest rate expectations in the wake of the conflict. The Federal Reserve (Fed) – the US’s central bank – had been engaged in a steady rate-cutting cycle in the run-up to the war, but the inflationary shock that followed has stalled this trend.
The Fed held rates steady at its last meeting at the end of April, and some experts now believe it may be forced to start raising interest rates.
Higher interest rates are negative for gold’s price performance.
“As a non-yielding asset, gold performs best when real yields decline and the US dollar depreciates,” said Kiran Kowshik, global FX strategist at Lombard Odier in a research note published by the private bank. “However, an energy supply shock can have the opposite effect, resulting in markets pricing higher central bank rate expectations, higher yields and a firmer US dollar.”
Is there a buying opportunity for gold?
The big question is how this affects the investment thesis for gold, particularly its status as a safe haven.
“If the Middle East conflict de-escalates and energy prices fall, in line with our base scenario, gold could recover,” said Kowshik. He added, though, that this is not the only variable impacting whether or not gold might recover in future.
While short-term headwinds like a stronger dollar and higher bond yields have worked against gold prices, longer-term structural drivers that have driven higher gold prices remain intact.
“Cooling investor sentiment does not undermine the structural case for gold, but instead shifts focus back to slower-moving drivers including central bank demand, portfolio allocation and fiscal uncertainty,” said Kowshik.
“I don’t think that, behaviourally, gold is broken,” said Shah. “If gold is supposed to be a highly liquid asset, then it’s doing its job.”
The gold landscape today is characterised, relatively speaking, by broader sources of demand than in the past: Chinese insurance companies and Indian pension funds have become eligible gold buyers since the start of last year, while the rise of gold-backed tokens like Tether gold mean that digital asset managers are now buying up gold in large quantities.
All of that suggests that the recent selloff could constitute a buying opportunity for would-be gold investors.
“When prices fall this much, it’s a good time to buy, especially if you were considering buying in the months prior to that,” said Shah.
Gold for diversification
One of the most compelling arguments for investing in gold is the diversification that it can offer to a portfolio.
“When bond yields stand at higher levels, shares and fixed income investments tend to track each other higher and lower,” says Tom Stevenson, investment director at Fidelity International. “That reduces the incentive to own a mixture of both bonds and shares. And it means that investors need to look further afield, into commodities and property, to gain that portfolio balance.”
Gold, by contrast, has “low-to-negative correlation to equities”, according to Raymond Backreedy, chief investment officer at Sparrows Capital.
An allocation to gold within a portfolio can therefore act as a source of diversification during certain market conditions.
When building multi-asset portfolios, “we typically allocate 3-10% [to gold] using the gold ETCs available on the market, depending on user case and overall percentage allocated to the defensive asset class”, said Backreedy.
