Gold has tumbled roughly 16% since the US-Iran war broke out in late February, a surprising move for a metal that often benefits from geopolitical turmoil. But Raphael Lamm, co-manager of the L1 Gold Fund, argues the pullback is more of a breather than a turning point.
Speaking to Bloomberg, Lamm said the fundamental drivers that pushed bullion to record highs earlier this year remain firmly in place: central banks around the world are still buying gold heavily, and worries about government finances—especially US debt now above $40 trillion—continue to support the metal's long-term appeal.
Gold was trading around $4,286 an ounce on Thursday evening in Sydney, according to Bloomberg data, still far above its levels from a year ago but well off the peaks reached before the conflict escalated.
Why gold is falling despite the war
Typically, investors flock to gold during wars and geopolitical crises as a safe haven. But this time, the initial spike faded quickly. Several factors explain the slide:
- Profit-taking: After a massive rally, some investors locked in gains, especially as prices hit record highs.
- Rising real yields: When bond yields adjust for inflation, higher real yields make non-yielding gold less attractive relative to interest-bearing assets.
- Dollar strength: A stronger US dollar makes gold more expensive for foreign buyers, dampening demand.
- War fatigue: Markets may be pricing in a quick resolution or a contained conflict, reducing the safe-haven bid.
Lamm, however, sees these as temporary headwinds. He emphasizes that the structural forces that drove gold to its highs haven't disappeared.
The case for gold's long-term support
Central-bank buying has been a key pillar of the gold market for years. Many central banks, particularly in emerging markets, have been diversifying their reserves away from the US dollar. This trend accelerated after Western sanctions on Russia in 2022, prompting other nations to question the safety of holding dollar-denominated assets.
At the same time, the US government's debt load has crossed the $40 trillion mark, a milestone that raises concerns about fiscal sustainability. Lamm argues that such debt levels, combined with persistent budget deficits, could eventually undermine confidence in the dollar and boost gold's appeal as a store of value.
Other central banks are also in focus. For instance, Japan's central bank raised rates to their highest since 1995, and Norway's central bank held rates at 4.50% while flagging a possible hike. These moves reflect a global tightening cycle that could influence gold's trajectory.
What it means for investors
For everyday investors, the key takeaway is that gold's recent drop doesn't necessarily signal the end of its bull run. Lamm's view suggests that the metal could rebound if the war drags on or if fiscal concerns resurface.
However, it's important to remember that gold is volatile and can fall even in supportive environments. Investors should consider gold as part of a diversified portfolio, not as a get-rich-quick scheme. The metal can act as a hedge against inflation and currency debasement, but it doesn't pay dividends or interest, so its performance depends entirely on price appreciation.
As with any investment, timing matters. Those who bought at the peak are now sitting on losses, but long-term holders may see this as a buying opportunity if they share Lamm's conviction.
Looking ahead
Investors will be watching several factors in the coming weeks: the trajectory of the US-Iran conflict, central bank announcements, and economic data that could influence the Federal Reserve's policy. A pause in rate hikes or a shift toward cuts would likely be positive for gold, as lower rates reduce the opportunity cost of holding the metal.
Lamm's confidence is notable, but it's not a guarantee. Markets can stay irrational longer than investors can stay solvent, as the saying goes. Still, for those who believe in gold's long-term story, the current pullback may indeed be a pause—not a reversal.
