# Gold Price Pullback Masks Strong Demand During Iran War: HSBC
Gold demand has remained firm despite the recent sell-off during the Iran conflict, and HSBC argues bullion has behaved as a true safe-haven by providing liquidity when investors needed cash most. For Indian investors, that matters because global gold price swings, a stronger U.S. dollar, and changing institutional demand in India can all influence domestic gold rates in INR.
Why did gold prices fall during the Iran conflict?
Gold prices fell because investors raised cash as oil prices surged, inflation fears returned, bond yields climbed, the U.S. dollar strengthened, and equities weakened. According to James Steel, Chief Precious Metals Analyst at HSBC, the sell-off does not mean gold failed as a safe-haven.
Steel said critics of the bullion market have argued that gold’s decline since the strikes on Iran and escalating oil prices shows gold is not a safe haven. He rejected that view and said the opposite is true.
How did liquidity needs pressure bullion?
Steel said rising oil prices restoked inflation concerns, while bond yields and the dollar moved higher and equities fell. In that environment, investors needed ready cash, and gold provided it.
“We did see liquidation in the gold market, but mostly as a reaction to the financial market,” Steel said. “In a sense, gold was an insurance policy, and that insurance policy was being cashed in.”
For XAUUSD traders, this means gold acted less like a simple geopolitical hedge and more like a liquid reserve asset during market stress. That distinction is important for Indian investors tracking short-term volatility versus long-term portfolio allocation.
What is HSBC saying about gold demand right now?
HSBC says gold demand remains strong, especially from China and official-sector buyers. Steel highlighted robust Chinese domestic demand and fresh central bank buying as key supports for bullion.
How strong is China’s gold demand?
China’s gold demand has been strong, with the Shanghai Gold Exchange premium running at around $20. That premium is the gap between China’s domestic gold price and the global gold price, and it typically signals firm local demand.
Steel said this demand is mostly institutional rather than driven by jewellery, coins, or small bars. He noted that buying has shifted more toward large bars.
What role are policy changes in China and India playing?
Regulatory reform is helping expand institutional gold buying in both China and India. Steel said top insurance companies in China are now allowed to accumulate bullion, while asset managers in India are also allowed to accumulate it.
That point is especially relevant for the Indian gold market. If domestic asset managers increase bullion exposure, it could support long-term investment demand even when retail jewellery demand fluctuates with price or rupee weakness.
How much gold did the People’s Bank of China buy?
The People’s Bank of China bought 8.1 tonnes in the latest monthly data, according to Steel. Continued central bank buying remains one of the clearest structural supports for gold prices globally.
For Indian investors, sustained official buying from major economies can help cushion downside moves in bullion and reinforce gold’s role as a strategic asset rather than only a tactical trade.
What happened after gold hit $5,400 per ounce in late January?
Gold’s rally to around $5,400 per ounce in late January may have become too extended before the pullback began. Steel said the run-up looked “a little robust” and suggested positioning had become crowded.
Was the gold market overly long?
Yes, Steel said the market had likely attracted a lot of money from participants who had not been active in gold for some time, or had not traded gold at all. He added that one could argue the market had become overly long, especially when looking at CFTC data and other available indicators.
That matters because heavily long positioning often leaves gold vulnerable to sharp corrections when macro conditions suddenly change. For Indian investors, such corrections can be amplified or softened in rupee terms depending on USD/INR moves.
How does gold’s relationship with oil prices look now?
Gold’s historical relationship with oil has weakened sharply over time. Steel said gold and oil were positively correlated in the 1970s and 1980s, but that link broke down in the 1990s.
What was the old gold-oil correlation?
In the 1970s, oil rose and gold rose with it, according to Steel. In the 1980s, oil fell and gold also fell.
What is the correlation now?
Steel said the correlation between gold and oil is now only about 0.15, and it can even turn negative at times. He added that it is negative at the moment.
This shift matters because investors can no longer assume that rising crude prices will automatically lift bullion. For India, which imports both oil and gold, a spike in crude can worsen inflation and pressure the rupee, while gold may respond more to yields, the dollar, and liquidity demand than to oil alone.
Is gold still a useful portfolio diversifier?
Yes, HSBC says gold remains a compelling portfolio diversifier despite recent underperformance. The bank argues that rising cross-asset correlations make gold and alternative assets more valuable in portfolios.
Why does HSBC still like gold over the next six months?
On April 2, HSBC commodity strategists Willem Sels and Lucia Ku reiterated a constructive view on gold for the next six months and said the bank is maintaining its Overweight positioning.
They said inflation concerns have led to rate volatility and a repricing of monetary policy expectations. They expect policymakers to maintain current interest rates for some time before easing later.
Sels and Ku also said HSBC continues to seek quality yields from investment-grade credit and emerging-market local currency bonds for income generation. Even so, they underlined that gold and alternative assets help improve diversification when cross-asset correlations rise.
What is HSBC’s medium- to long-term outlook for bullion?
HSBC remains bullish on gold over the medium to long term. Sels and Ku said that despite the recent pullback, they still see support from diversification benefits and safe-haven demand.
They also said gold’s recent headwinds should be short-lived because the underlying fundamentals remain supportive. According to the analysts, gold continues to serve as a compelling portfolio diversifier amid geopolitical uncertainty and central bank buying.
Why did HSBC say gold is acting like a risk asset in 2026?
HSBC Asset Management said gold has been behaving more like a risk asset in 2026, even though its long-term case remains intact. The firm said recent price moves after the Iran conflict have defied the conventional geopolitical playbook.
What did HSBC Asset Management say on March 30?
On March 30, HSBC Asset Management analysts said gold was selling off sharply amid heightened geopolitical tensions and a stronger U.S. dollar, even though many investors would usually expect the opposite.
They said the conventional assumption was that mounting geopolitical tensions and economic uncertainty would boost the yellow metal, much like last year’s “Liberation Day” episode and the spectacular two-year rally that followed.
Instead, gold moved the other way and had lost 15% to date in March, according to the analysts.
What factors hurt gold in March?
A stronger U.S. dollar was a major headwind because it deterred non-U.S. buyers. The analysts also said a hawkish repricing of interest rates increased the opportunity cost of holding a non-yielding asset like gold.
For Indian investors, that combination can create mixed effects. A lower global gold price may soften import costs, but a stronger dollar can lift domestic bullion prices in INR, limiting the benefit for buyers in India.
Gold now faces a crucial test: whether central bank demand, institutional buying in China and India, and its role as a liquid safe-haven can outweigh pressure from yields and the dollar. Indian investors should watch the next signals from the Federal Reserve, USD/INR, and official-sector buying data, as these may shape the next major move in gold price trends.
