Gold prices have dropped sharply as escalating tensions in the Middle East heighten concerns about inflation and reinforce expectations that central banks could raise interest rates.
Earlier today, spot gold fell to $4,234 per ounce, representing a decline of roughly 5%, while gold futures dropped 7% to $4,267 per ounce.
The traditional safe-haven metal has been under significant pressure in recent days. Prices sank more than 10% last week — marking the steepest weekly decline since February 1983 — and gold has now fallen more than 20% from the record high of $5,594.82 reached on January 29.
Other precious metals also moved sharply lower this morning. Spot silver slid 9% to $62.7 per ounce, while spot platinum dropped 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 risk strikes targeting its power plants.
Iran responded that it would “completely” shut the strategic waterway and target its energy, IT and desalination infrastructure if its power facilities were attacked.
Tensions surrounding the Strait of Hormuz continue to support oil prices. West Texas Intermediate crude traded at $100.64 per barrel (+2.6%), while Brent crude rose to $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, a financial advisor in the wealth management division of UBS Group AG.
David Wilson, director of commodity strategy at BNP Paribas SA, said the metal’s reaction to the current macroeconomic shock resembles patterns seen in previous crises. “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, noting that each of those periods was later followed by a sustained rally.
Since the conflict began, surging energy prices have pushed investors to anticipate potential rate hikes from the Federal Reserve and other major central banks, including the European Central Bank. This has created headwinds for gold, which has just experienced its steepest weekly drop in more than forty years.
While rising inflation typically 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,” Ewa Manthey, commodities strategist at ING, said 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 noted that geopolitical developments on their own rarely drive gold prices over the long term. “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 decline reflects investors’ need for liquidity. “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.
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