Gold prices sharply declined in March, driven by shifting expectations regarding monetary policy from central banks amid tensions in Iran.
Gold Price Drop in March 2026
The decline in gold prices observed in March is due, among other things, to a sharp change in expectations regarding the monetary policy of major central banks. PKO BP strategist Mirosław Budzicki indicated that investors, who recently expected interest rate cuts or maintenance, now anticipate rate hikes.
Price Fluctuations and Current Valuation
On Monday around 1 PM, gold was valued at approximately $4,500 per ounce. This price would represent a nearly 20% drop from the beginning of March and over 21% from the peak in late January, when the price exceeded $5,580 per ounce. However, by around 3 PM, gold had risen to over $4,500 per ounce, still 15% below the price at the beginning of March.
Iran Conflict and Central Bank Policy
Mirosław Budzicki of PKO BP stated that the main reason for the gold price decline is the change in expectations regarding the direction of monetary policy of major central banks, triggered by the war in Iran. While the conflict has caused aversion to risky assets, it primarily impacts markets through rising energy prices.
This, in turn, translates into investor expectations that central banks, fearing rising inflation, will begin to raise interest rates. Budzicki emphasized this shift in market expectations, noting that Poland had considered two rate cuts totaling 50 basis points to 3.25% at the beginning of March, but the market now expects a 100 basis point increase to 4.75%.
Interest Rates and Gold’s Inverse Relationship
Similar changes in market expectations are visible in other central banks. The market recently expected stabilization of interest rates in the Eurozone but now anticipates three increases, raising the ECB deposit rate from the current 2% to 2.75%.
US Federal Reserve Expectations
In the US, expectations recently pointed to two or three interest rate cuts, but the market now expects one rate hike from the Fed. This change causes gold, a non-interest-bearing asset, to lose out to other assets. The strengthening of the dollar, which typically appreciates in times of international tension, also makes dollar-denominated assets more attractive than gold.
Investor Preference for Cash
Budzicki believes the sell-off of gold in March may have been influenced by investors preferring to hold cash during periods of heightened risk. They may have simply sold gold to free up funds, or been forced to do so to cover losses in corporate bond markets or supplement security deposits required for certain investments, such as derivatives.
Future Outlook and Potential Price Ranges
The future of gold depends on how the conflict in the Middle East develops. Escalation could lead to further increases in energy prices, rising inflation expectations, and stronger moves from central banks, potentially driving the price of gold down to $4,000 per ounce, or even $3,300 per ounce if the situation worsens. However, this trend could reverse with any signs of de-escalation.
The Monday session began with a sell-off of risky assets, but improved after US President Donald Trump decided to suspend retaliatory attacks on Iran’s energy infrastructure for five days.
