Gold is known as a top safe haven asset in times of volatility, but with the war in the Middle East, this classic standing has been challenged as investment volumes fell in the first quarter, industry data showed Wednesday, as the conflict forced some investors to liquidate holdings to raise cash.
Investment volumes fell by 5% during the quarter, according to the World Gold Council (WGC), despite gold having set a record high in January as investors sought refuge from a weak dollar and U.S. President Donald Trump's erratic policy shifts.
"Hefty outflows in March reversed much of the sizable January and February inflows" into gold exchange-traded funds (ETFs), an easy means to invest in the precious metal, the council said in its quarterly report.
And that was linked in particular to North American funds.
"Oftentimes, because gold is so widely accepted, it is the first thing that you sell when you need a certain access to cash or to liquidity," said World Gold Council expert Juan Carlos Artigas.
Following the U.S.-Israeli attacks on Iran at the end of February, Tehran closed traffic through the Strait of Hormuz, through which a fifth of the world's oil and liquefied natural gas (LNG) normally flows.
That sent oil and gas prices rocketing higher and disrupting markets, forcing many investors to raise cash to settle their positions.
The prospect of the U.S. Federal Reserve (Fed) raising interest rates in response to higher inflation boosted the dollar, making gold more expensive for investors who don't hold dollars.
If demand for gold dropped by volume, the value of purchases jumped by 62%.
Gold touched a new record just shy of $5,600 per ounce at the end of January, and averaged $4,873 per ounce over the quarter.
High prices, driven largely by investment holdings, hit demand for jewellery, however.
The jewelry market was also disrupted by the war, with the Middle East a key shipping hub.
