While gold typically benefits from geopolitical uncertainty, the current environment over the war in Iran has instead fuelled inflation concerns due to surging oil prices and supply chain disruptions.
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Gold prices have come under intense pressure amid escalating geopolitical tensions in the Middle East, while the South African rand has weakened sharply as global investors retreat to safer assets.
The precious metal fell more than 8% on Monday to around $4,100 per ounce, marking its weakest level in four months. This extends a broader decline of over 20% since the start of the year, underscoring the scale of the sell-off in what is traditionally viewed as a safe-haven asset.
Market analysts point to a shift in investor sentiment as the primary driver. While gold typically benefits from geopolitical uncertainty, the current environment over the war in Iran has instead fuelled inflation concerns due to surging oil prices and supply chain disruptions.
This has led to expectations of tighter monetary policy globally, reducing the appeal of non-yielding assets like gold.
Last week alone, gold dropped more than 10% as oil prices surged, intensifying fears of persistent inflation. Investors are increasingly betting that major central banks will keep interest rates higher for longer, or even raise them further.
The US Federal Reserve is now seen as potentially hiking rates toward the end of the year, while the European Central Bank, Bank of England and Bank of Japan have all signalled readiness to tighten policy if inflationary pressures persist.
Compounding the downward pressure on gold is the need for liquidity among major economies. With governments facing rising fiscal demands linked to the war, there is growing speculation that some may turn to gold sales to support their financial positions, further weighing on prices.
Despite the current weakness, structural developments in the gold market continue to evolve.
The World Gold Council recently announced plans to develop shared infrastructure for digital gold, in partnership with Boston Consulting Group. The initiative, known as “Gold as a Service”, aims to modernise the gold market by improving accessibility, standardisation and integration with financial systems.
The proposal seeks to address long-standing structural barriers that have limited the scale of digital gold products, including complexity, lack of standardisation and reduced fungibility.
By creating interoperable systems that link physical gold custody with digital issuance, the initiative could unlock new use cases and enhance gold’s role as deployable capital in the global financial system.
While these long-term innovations may support gold demand in the future, they have done little to offset the immediate pressures stemming from macroeconomic and geopolitical developments.
At the same time, the rand has come under significant strain. The currency has weakened beyond the R17.00 to the US dollar level, reflecting both global risk aversion and domestic market pressures.
The rand fell 0.8% to R17.23 against the greenback on Monday. On a trade-weighted basis, the rand has depreciated by around 4.4% since the onset of the Middle East conflict.
Foreign capital outflows have played a major role in the currency’s decline. South Africa has experienced approximately R32 billion in net foreign selling of bonds in March alone, contributing to the rand’s weakness.
The Johannesburg Stock Exchange has also seen heavy selling, with the index falling sharply from near 130,000 points in February to around 110,000 points as global investors reduce exposure to riskier assets.
According to Investec chief economist Annabel Bishop, the rand has been highly volatile, hovering around the R17.00/$ mark amid fluctuating oil prices and shifting global sentiment.
Notably, the rand’s recent depreciation comes after a period of relative strength earlier this year, supported by improved investor sentiment.
South Africa had benefited from its removal from the greylist, a credit rating upgrade by S&P, and progress on structural reforms under Operation Vulindlela, which had boosted confidence in the country’s medium-term growth outlook.
However, the renewed global uncertainty has reversed much of this momentum. While the rand is expected to recover once the conflict subsides and risk appetite returns, the duration of the war remains a critical factor.
“The clear risk is a lengthy war in the Middle East, counter to financial market expectations, causing the risk-off environment to persist, instead of the short sharp war anticipated, and a return to risk-on in financial markets,” Bishop warned.
For now, both gold and the rand remain at the mercy of geopolitical developments, with markets bracing for continued volatility as the conflict shows little sign of easing.
BUSINESS REPORT