Hostilities emerging with Iran are disrupting global oil flows, damaging power infrastructure, and raising worries about a prolonged conflict. Yet, gold, typically viewed as a safe haven during economic instability, has seen a downturn.
Gold plummeted by 11% this week, marking its steepest weekly loss since 1983. The precious metal has declined by over 14% since the war began.
When turmoil strikes, investors frequently flock to gold, anticipating it will retain its value against soaring inflation, currency devaluation, or general crisis. Nevertheless, the sharp spike in energy costs spurred by the Middle East conflict is prompting central banks worldwide to reassess their interest rate projections. This is highly significant for gold.
This volatility has also fueled a dollar resurgence and led investors to re-evaluate their holdings.
Here’s the essential breakdown:
Traders anticipate the Federal Reserve will maintain steady interest rates this year, which enhances the appeal of yield-bearing assets like bonds while diminishing the attraction of non-yielding gold.
The Fed’s rate stance matters greatly to markets. The Fed just held rates constant for the second consecutive meeting. According to CME FedWatch, traders are pricing in no further rate cuts this year.
Gold soared in the autumn when the Fed implemented three consecutive rate cuts. Now, with rates expected to remain flat for several more months, bond yields are rising. This elevates the opportunity cost of holding gold.
“I genuinely believe that in gold’s recent price drop, high yields have played a significant role,” noted Haridka Singh, a Fundstrat economic strategist.
It’s not just the Fed: central banks globally are adjusting their rates in reaction to the Iranian conflict and energy price disruptions. Inflationary concerns are pushing monetary authorities to keep rates steady or, in some cases, like the Reserve Bank of Australia, to increase them.
The US Dollar has strengthened this month, making dollar-denominated gold relatively more expensive for international buyers.
The trajectory of the US Dollar is another crucial determinant for gold.
Gold typically benefits when the dollar weakens, as the metal becomes comparatively more accessible to investors around the globe.
The Dollar Index has climbed nearly 2% since the Iran conflict started, halting months of decline. A recovering dollar can dampen gold’s appeal.
Safe-haven demand, anxiety over inflationary pressures, and the prospect of higher interest rates have all contributed to the dollar’s rise. This serves as another market signal that traders are concerned about how the war with Iran might destabilize the global economy.
Gold experienced a massive surge in recent months, and that fervor is starting to fade. Investors might also be selling to cover losses elsewhere in their portfolios.
Momentum is waning after gold’s sharp ascent over the past couple of years.
Gold had appreciated by 64% in 2025, recording its best year since 1979. The metal breached $5,000 per troy ounce for the first time in January.
The excitement may be cooling… for now. On Friday, gold dipped below $4,500 per troy ounce, erasing gains made over the preceding two months.
A portion of gold’s rapid rise in recent months was fueled by retail investors chasing gains. Recently, gold has been trading more like a meme stock than a safe haven.
“The upside momentum has softened,” stated strategists at the Dutch bank ING in a memo. “Some investors are selling gold to raise cash or rebalance portfolios.”
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Many strategists remain bullish on gold’s outlook. The US Dollar recovery could stall, and geopolitical uncertainty is set to persist. A target of $6,000 for gold by year-end remains on the cards for Wall Street veteran Ed Yardeni.
“However, we are considering reducing our annual target back down to $5,000 if gold continues to defy our expectations for a rally amid troubling geopolitical circumstances, rising inflation, and mounting US national debt,” Yardeni said in the memo.
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