The gold market has faced a major shock as escalating hostilities in the Middle East sent crude oil prices soaring while fueling worries over persistent global inflation and erasing prospects for near-term interest rate reductions. Spot gold dropped to around $4,288 per ounce on Monday, capping a rapid slide of more than 10% for the week, its steepest weekly decline since 1983. Gold futures declined 7% in early sessions, eliminating all of the metal’s gains made during 2026. The market’s abrupt reversal has gripped both investors and central banks with renewed uncertainty over global monetary policy.
Rising Rates Pressure Gold, Markets Shift Focus
Gold typically finds support in uncertain times. However, the steep slide followed a sharp increase in oil prices stemming from a mounting crisis involving the United States, Israel, and Iran. With concerns mounting that higher oil prices could further entrench inflation, traders have dialed back their expectations for interest rate cuts. The European Central Bank and Bank of England have signaled potential rate hikes for the year, while the Federal Reserve has seen market pricing for 2025 cuts vanish.
As inflation worries grip financial markets, gold—offering no yield—has become less attractive compared to income-generating assets. The US dollar has also strengthened, making gold more expensive for buyers using other currencies and pressuring prices even further for international investors.
Geopolitical Shocks and Market Liquidations
The dramatic moves in precious metals were triggered as President Donald Trump issued a 48-hour ultimatum to Iran to fully reopen the Strait of Hormuz. Trump warned that non-compliance would result in American strikes against key Iranian energy infrastructure. The Strait of Hormuz serves as a critical global shipping channel for oil, and any military escalation in the Persian Gulf could have far-reaching economic consequences. Trump is currently serving as U.S. President, following his reelection for a second term.
Iran responded to these demands with threats of broader attacks on energy and water infrastructure across the region, including the risk of closing the Strait entirely. The conflict between Israel and Iran has now lasted four weeks, escalating pressure on energy markets and raising the stakes for global growth.
Despite the rise in geopolitical risk, gold has not drawn traditional safe-haven buying. Instead, market sentiment is dominated by concern over sticky inflation and the chance that central banks will keep rates higher for longer. Investors, facing losses in other asset classes amid market volatility, have reportedly sold gold to raise liquidity and offset wider portfolio losses.
Greg Shearer, who leads base and precious metals strategy at JPMorgan, described the selloff as an “extremely brutal flush,” noting that the decline was part of a wider liquidation across assets rather than solely focused on gold. OCBC analysts commented that markets are “trading less on geopolitical hedging flows and more on fears that stickier inflation could prompt a more hawkish central bank stance.”
Other metals were not spared in the rout. Silver slid 2.7% to $65.90 per ounce, and platinum lost 3.9% to $1,850 per ounce, while copper also fell sharply. ING’s Ewa Manthey emphasized that gold’s liquidity can make it a source of funding as investors look to cover losses elsewhere.
JPMorgan analysts maintain a positive long-term forecast for gold, suggesting that continued disruption in energy supplies and broader economic impact could potentially set the stage for a renewed rally in the metal.
