Gold prices plunged more than 5%, ending a four-day winning streak. Despite escalating conflict in the Middle East, a stronger U.S. dollar and rising bond yields diminished the appeal of gold as a safe-haven asset.
Commodity strategists from Société Générale and MKS PAMP SA noted that a deep sell-off in U.S. stocks on Tuesday forced some investors to liquidate precious metal positions to meet margin calls in other parts of their portfolios.
Additionally, some traders worry that surging energy prices could reignite inflation, increasing the likelihood that the Federal Reserve will keep interest rates elevated for longer. While gold is traditionally viewed as an inflation hedge, higher interest rates tend to reduce the attractiveness of non-yielding gold, and a stronger dollar has a similar effect.
So far this week, the U.S. dollar index has gained approximately 1.5%. On Tuesday, the two-year U.S. Treasury yield approached its highest level this year. Traders now expect the Fed to deliver more than 25 basis points of rate cuts this year, whereas as recently as last Friday, the market had fully priced in two rate reductions.
The head of foreign exchange and commodity research at Commerzbank wrote in a report, "The experience of 2022, when the Russia-Ukraine conflict drove up oil prices and triggered global inflation, is likely serving as a reference template for the current market." She pointed out that during that period, the Fed's earlier interest rate hikes and a stronger dollar led to gold weakening over the course of the year.
By the New York trading session, spot gold had fallen to $____ per ounce; silver plummeted to $____ per ounce; platinum and palladium also experienced significant declines.
The precious metals market has experienced high volatility for months, partly because gold and silver prices repeatedly hit record highs this year. The intense intraday swings have pushed the risk exposure of some traders close to their permitted limits.
At the start of the week, investor inflows into safe-haven assets pushed gold prices higher. On Tuesday, the conflict expanded further. The U.S. President stated that military strikes would continue until objectives were met; Israel announced a "wave of strikes" against Iranian command centers. Simultaneously, Iran attacked oil and gas infrastructure and threatened shipping security in the strategic Strait of Hormuz.
Even before the U.S. and Israeli strikes against Iran over the weekend, signs of resurgent U.S. inflation had emerged. Data from the Institute for Supply Management showed that manufacturing input prices surged in February at the fastest pace since 2022. The CEO of JPMorgan Chase warned that inflation could be a "skunk at the party" for the U.S. economy.
Year-to-date, gold prices have risen over 25%, supported by persistent geopolitical and trade tensions, as well as concerns about the Federal Reserve's independence. Renewed investor anxiety about inflation and currency depreciation has injected fresh momentum into this multi-year rally.
Swiss private bank UBP SA stated in a report that if the Middle East conflict persists for several weeks, gold has "ample room" to challenge the all-time high above $5,595 per ounce reached in late January. On Monday, gold closed at its highest level in over a month.
Beyond disrupting energy supplies, the conflict has created physical shipping bottlenecks for precious metals. The United Arab Emirates, a major global gold trading hub, closed its airspace over the weekend, and several commercial airlines suspended operations in the Gulf region—halting gold and silver shipments that typically rely on passenger aircraft cargo holds.
Representatives from multiple trading and logistics firms indicated that metal transport to and from Dubai has been suspended indefinitely. Anonymous sources familiar with the matter noted that overland transport from other airports in the region is often not feasible due to the high risks associated with moving precious metals by road.
