Gold prices have sharply retreated as escalating tensions in the Middle East intensify inflation concerns and strengthen expectations that central banks may raise interest rates.
Earlier today, spot gold dropped to $4,234 per ounce, a decline of about 5%, while gold futures slid 7% to $4,267 per ounce.
The traditional safe-haven metal has been under heavy pressure recently. Prices fell more than 10% last week — the steepest weekly drop since February 1983 — and the metal has now shed over 20% from the record peak of $5,594.82 reached on January 29.
Other precious metals also moved sharply lower this morning. Spot silver declined 9% to $62.7 per ounce, while spot platinum fell 7% to $1,787.
Over the weekend, U.S. President Donald Trump issued Iran a two-day ultimatum to reopen the Strait of Hormuz or face strikes targeting its power plants.
Iran responded that it would “completely” close the strategic waterway and target its energy, IT and desalination infrastructure if its power plants were attacked.
Strained conditions around the Strait of Hormuz are helping keep crude prices elevated. West Texas Intermediate traded at $100.64 per barrel (+2.6%), while Brent crude reached $113.71 (+1.35%).
“The scale of the gold price collapse is not unprecedented, but the pace of the sell-off has been much faster than on many other historical occasions,” said Wayne Gordon, financial advisor in the wealth management division at UBS Group AG.
David Wilson, director of commodity strategy at BNP Paribas SA, noted that gold’s reaction to the current macroeconomic shock follows a familiar pattern. “If you look at the three previous economic shock cycles (in 2008, 2020, and 2022), gold initially fell as markets reacted to the news, with investors typically selling assets to hold U.S. dollars,” he said, adding that each of those episodes was eventually followed by a sustained rally.
Since the conflict began, surging energy prices have pushed markets to anticipate possible rate hikes from the Federal Reserve and other major central banks, including the European Central Bank. This dynamic has created headwinds for gold, which has just experienced its worst weekly decline in more than four decades.
Although rising inflation often boosts gold’s appeal as a safe-haven asset, higher interest rates tend to weigh on the metal because it does not generate yield.
“Despite the escalation of the war with Iran, gold prices have declined since the start of the conflict, highlighting how macroeconomic factors, particularly interest rates, the US dollar, and multi-asset positioning, continue to dominate near-term price dynamics,” said Ewa Manthey, commodities strategist at ING, in a note. She added: “This pattern is consistent with previous shock episodes, where liquidity needs tend to prevail over safe-haven demand in the initial stages.”
Manthey also pointed out that geopolitical developments alone rarely determine gold’s longer-term trajectory. “More generally, geopolitics alone rarely impacts gold prices in a sustained manner,” she said. “What matters is how such shocks impact inflation, monetary policy, and the dollar. In the short term, a stronger U.S. dollar and gold’s high liquidity can make it a source of financing during times of stress.”
Johan Jooste, CEO of Pangaea Wealth AG, argued that the recent drop reflects liquidity pressures among investors. “Gold has a liquidity problem,” he said. “The rapid sell-off was driven by investors’ need for liquidity, and if the war were to continue to escalate, the precious metal would further increase its downside risk,” Jooste concluded.