Why Gold Fell During A War…and Why That Drop May Already Be Done

Gold may have just bottomed.

Gold hit an all-time high above $5,500 back in January. Since that time, it’s given back roughly a quarter of its value, dropping into the low $4,000s.

What’s striking about this is that this drop occurred despite:

1. Geopolitical uncertainty.

2. Demand remaining strong.

Regarding #1, gold historically has performed exceptionally well during periods of geopolitical stress. Most notably, gold jumped from $271 per ounce to $292 per ounce during the 9/11 terrorist attacks. Similarly, gold rallied from $1,780 per ounce to over $2,060 per ounce during the buildup to and subsequent invasion of Ukraine by Russia in February/March 2022.

Remarkably, gold has fallen during the Iranian conflict, which has generated EXTREME geopolitical uncertainty. This is highly unusual, especially when you consider that demand for the precious metal has remained high (#2 in our list above).

Why is this?

The gold price you see quoted every day comes from the futures market, not the physical market. The futures market is paper consisting of traders using leverage (borrowed money) on contracts that represent many multiples of the actual metal sitting in vaults.

When the dollar caught a bid due to the oil shock from the Iranian conflict, leveraged paper positions got margin called and were flushed out fast. Anyone watching the markets during this period would have noted that gold initially spiked on the news, then reversed over 6% in a matter of hours as paper traders got blown out of their positions.

This was mechanical, forced selling. And it had nothing to do with whether anyone actually wanted gold. Indeed, physical premiums stayed elevated the entire time. Stackers, jewelers, and central banks kept buying at the same pace. Heck, central banks alone bought over 240 tons of gold in the first quarter of 2026!

The point I’m making here is that much of the decline in gold prices since the war in Iran began was driven by the deleveraging of paper positions, NOT a lack of demand. And by the look of things, that period is now ending.

Gold has just broken its downtrend for the first time since its February 2026 highs.

This is happening at a time when gold miners are printing cash.

As Bank of America recently noted, gold miners have become one of the most profitable sectors in the entire market. Gold miner free cash flow is now 10 times what it was in 2020. Long-term debt as a percentage of equity has been cut in half. And miner earnings yields are now 12%, the highest of any sector in the market.