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 about 6% since before the war began, sharply increasing market doubts about its safe-haven properties.

According to ChaseWind Trading Platform, JPMorgan Chase provided a systematic analysis in its March 13 commodity research report: during the initial surge of market pressure, gold was “sold off together,” which is supported by historical patterns, rather than a sign of losing 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 trading days and regaining lost ground.

JPMorgan Chase pointed out that the current gold sell-off is driven by multiple factors: soaring energy prices raising inflation expectations, prompting the market to sharply lower expectations for Fed rate cuts, combined with a rapid rebound in the dollar, creating a recent direct bearish environment. However, the bank believes the main 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 raise liquidity across asset classes, with gold holdings among the first to be sold off, leading to noticeable outflows from global gold ETFs last week.

In the short term, JPMorgan Chase warns that gold may still face further downside, especially if stock markets price in a worsening global economic outlook more aggressively, triggering a new wave of de-risking, and if interest rate markets continue to digest expectations of Fed rate cuts, which could add further pressure. However, the bank also emphasizes that the longer energy disruptions last and the more substantial their impact on inflation and economic growth, the more likely it is that macro conditions will “turn bullish quickly and significantly,” with the Fed shifting toward easing, further amplifying this trend.

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

“Full-scale sell-off”: Gold Unavoidably Faces De-risking Wave in the Market

JPMorgan Chase’s analysis shows that the initial sell-off of gold under market pressure is a historically supported structural pattern. Weekly data since 2006 indicates that when the VIX index remains high (30 and above) and continues to rise, gold’s average weekly return turns negative—this is the only VIX range exhibiting this characteristic, with a 45% probability of gold prices 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 boost liquidity. As a highly liquid asset, gold is not immune. Meanwhile, high VIX often coincides with an asymmetric strengthening of the dollar, which adds further downward pressure on dollar-denominated gold prices.

JPMorgan Chase 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,” which explains why gold prices did not sustain gains after the Iran conflict erupted.

Historical Pattern: Short-lived Initial Selling, Rapid and Significant Rebound

Historical data further reveals that declines in gold caused by de-risking are usually short-lived, with subsequent rebounds being rapid and substantial. JPMorgan Chase analyzed 25 independent events 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%; however, from the third trading day onward, gold prices showed a sustained and clear rebound; by the fourth day, gold had recovered all losses and even surpassed pre-breakout levels; approximately 10 trading days from the low point, the average increase from trough to peak exceeded 2%.

It is noteworthy that in these 25 events, 22 saw the VIX fall back below 30 within about 10 to 15 trading days. JPMorgan Chase 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 remains 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, and investors should remain cautious.

Longer-term Bullish Logic: Inflation Hedge and Fed Policy Shift

JPMorgan Chase 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-side shocks and supply chain constraints, with commodities overall rising far more than gold, representing a special case. JPMorgan Chase suggests that if this oil price shock evolves into a stagflation environment, gold’s inflation hedge value will become even more prominent.

Second is the expectation of a policy shift by the Federal Reserve. Citing its economists, JPMorgan Chase notes that moderate oil price increases tend to support the Fed maintaining steady rates; however, if oil prices continue to rise sharply to $120 per barrel or higher, the risk of economic downturn will non-linearly increase, with substantial drag on the labor market. Although inflation will remain high, the transmission to core inflation will be relatively limited, and the Fed is expected to turn dovish due to its dual mandate of employment. JPMorgan Chase emphasizes that once the Fed’s rate cut path accelerates, it will significantly boost gold’s upward momentum.

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