Central Banks Sold Gold for Dollars After Iran War

Central banks and large reserve managers sold gold after the Iran conflict began on Feb. 28, reducing bullion prices from about $5,200 per ounce in early March to roughly $4,700 by the end of April, a decline of nearly 10 percent. A report from Confluence Investment Management identifies the selling as a key factor in the price move.

Turkey’s central bank announced plans to sell 60 tonnes of gold and convert the proceeds into dollars. Confluence reported other reserve managers began similar sales around the same time. The public nature of Turkey’s announcement coincided with an intensification of selling and a clear inflection in gold’s price trend, according to the firm’s charts.

Confluence said the sales were driven by an urgent need for dollar liquidity among oil-importing central banks. Because most oil is priced and paid for in U.S. dollars, reserve managers sought to build dollar balances to meet anticipated higher import bills after supply disruptions tied to the conflict.

The firm noted a change in how some reserve managers now use gold and U.S. Treasurys. Before recent sanctions on Iran and Russia, many central banks held Treasurys for short-term liquidity and gold as a long-term store of value. Confluence reported that increased political and operational risk around holding U.S. debt has led some managers to treat gold as a partial substitute for Treasurys, making gold more likely to be sold to raise cash in a crisis.

Confluence’s data shows medium-term Treasury notes produced a negative total return of about 1.5 percent over the same period, while three-month Treasury bills returned roughly 0.6 percent. The firm said those results are consistent with reserve managers prioritizing immediate dollar liquidity.

The report also noted that some central banks had raised gold allocations before the conflict and that initial sales included profit-taking as well as liquidity needs. Confluence reported it adjusted some asset-allocation strategies to increase gold exposure in certain accounts while leaving allocations unchanged in others, and it cautioned that shifting reserve practices could increase price volatility.

Confluence included a chart of a real commodity-price index moving above its long-term trendline, which the firm described as consistent with commodity rallies seen during past geopolitical shocks. The report and its charts form the basis for the observations on selling patterns, reserve behavior and short-term price effects.