By Vivien Lou Chen
The precious metal traded mostly sideways over the past week, even as tensions between the U.S. and Iran escalated
Gold has been acting less and less like a safe haven.
Gold has been on a spectacular, record-breaking bull run for much of the past three years - but some of the shine may be coming off the yellow metal, judging by its moves over the past week.
Despite reports of a pending U.S. military strike on Iran, gold traded largely sideways and failed to stay sustainably above $5,000 per ounce for much of the week, until it finally retook the psychologically important threshold on Friday. Gold futures (GC00) are off 4.9% from a record high of $5,318.40 reached on Jan. 29, based on Dow Jones Market Data. Silver prices (SI00), meanwhile, have fallen almost 29% from an all-time high of $115.08 an ounce on Jan. 26 - raising questions about the role of precious metals in the commodities supercycle that some expected to unfold this year.
Read: Gold falls below $5,000 mark, silver drops as demand weakens during Lunar New Year holiday
Gold's muted response to geopolitical events over the past week reinforces what a number of people were already thinking: The precious metal has been acting less like a safe haven, and more like a risk asset. And the end of its bull run might be approaching, considering how everything from bitcoin (BTCUSD) to U.S. technology stocks has struggled recently. Gold's price has jumped more than 200% since it initially started moving higher in October 2022; at that time, it traded around $1,640 per ounce.
Investors received some clues about shifting preferences tied to gold over the past week. On Wednesday, intensifying speculation about a U.S. strike on Iran sent U.S. crude-oil futures (CL00) (CLJ26) climbing above $65 a barrel. At the same time, the bid for gold was too weak to keep the yellow metal above the $5,000 level. By Thursday, reports indicated that the U.S. military was prepared to strike Iran as early as this weekend - which pushed Brent crude (BRN00) to more than $70 per barrel. But many investors headed for the safety of the dollar DXY instead of gold.
&#34;We think this bull market on gold is becoming increasingly fragile,&#34; said Michael Reynolds, vice president of investment strategy at Philadelphia-based Glenmede, which oversees about $50 billion in assets. He added that he isn't surprised that the precious metal's price has stalled at around $5,000, since assets traditionally sensitive to geopolitical risks can &#34;break down in materially overvalued scenarios.&#34;
&#34;From our perspective, $5,000 is way above fair value based on fundamentals&#34; when the fair value should be closer to between $3,000 and $3,500, Reynolds noted.
On Friday, gold finally moved sustainably above the $5,000 mark for the first time this week, and ended up by 1.7% at roughly $5,059 per ounce - even as expectations for an aggressive, imminent U.S. strike against Iran started to fade.
President Donald Trump extended his timeline for making a decision on potential military action by 10 to 15 days, and told journalists he was thinking of a limited military strike that would pressure Iran into agreeing to curtail its nuclear program.
David Morrison, a London-based senior market analyst at Trade Nation, said Friday's gold rally had less to do with safe-haven plays and more to do with a weakening dollar, which contributed to supporting the precious metal. He described Friday's rally in gold as a &#34;sideways move,&#34; with no indications that the price will return to its record level seen at the end of last month.
A look at the 30-day correlation between gold and the S&amp;P 500 stock index SPX shows that the precious metal has been behaving less like a flight-to-safety trade for years, and more like a stock. This correlation has been more positive than negative since the start of gold's bull run - meaning the two have generally risen or fallen in tandem.
'Parabolic' rally
Gold's multiyear rally has been attributed to factors such as increased purchases by central banks, concerns over persistent U.S. fiscal deficits and a shift away from dollar-denominated assets by foreign investors. A weaker dollar also plays a big role, by making gold less expensive for foreign investors.
Like Friday's market moves, the precious metal's rally into the end of last month has had less to do with safe-haven buyers than people think, according to Morrison, who added that the &#34;parabolic blow-off top&#34; reached on Jan. 29 could mark the end of gold's multiyear bull run.
To see more upside from here, gold would probably need to hold above $5,000 and/or experience a deep, protracted pullback before it can keep climbing higher again on &#34;some sort of catalyst,&#34; the analyst said, citing the metal's track record since 2011.
Under a model developed by Glenmede, gold currently sits at the 98th percentile of its historical fair value - meaning that conditions are now ripe for the precious metal to become just as volatile as bitcoin when materially overvalued. In addition, gold is the only major asset class that Glenmede is monitoring that, according to the firm's models, has a negative expected return for the next 10 years.
Tom Winmill, the New Hampshire-based portfolio manager of Midas Discovery MIDSX, a fund which invests in natural resources and precious metals, said he isn't surprised to see gold acting like less of a safe haven than it has in the past, especially at times when geopolitical tensions are escalating.
Unlike Glenmede's Reynolds, however, Winmill said gold's bull run still has a long way to go. One reason is that foreign central banks, like China's, are still buying the yellow metal due to U.S. fiscal and monetary policies. Foreign central-bank buying - along with a drumbeat of calls for lower U.S. interest rates and the potential long-term debasement of the dollar - is &#34;very hard to stop.&#34; This makes gold's recent moves more of an orderly consolidation rather than a sign of structural weakness, Winmill said.
As for investors seeking safety, anyone who was buying gold as a haven from volatility stoked by U.S. military action overseas has probably already done so, he said - noting the Russian invasion of Ukraine, and the war in Gaza between Israel and the Palestinian militant group Hamas.
&#34;Short-term geopolitical events definitely move the gold price around a little, but incremental demand from safe-haven buying is minimal because the source of that demand has been exhausted,&#34; Winmill said.
-Vivien Lou Chen
This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
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Gold has recently shed its safe-haven status, trading sideways despite escalating U.S.-Iran tensions. After a record-breaking bull run, gold's price has struggled to stay above $5,000 per ounce, closing at approximately $5,059. Analysts suggest that the precious metal is behaving more like a risk asset, with a fragile bull market. Factors such as a weakening dollar and shifting investor preferences are influencing gold's performance, raising questions about its future in the commodities market.

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