Gold faces a bleak week, and the underlying reasons are concerning

The Iran-Iraq conflict has disrupted global oil transportation, dealt a severe blow to energy infrastructure, and has also increased market concerns that the conflict could become prolonged. But gold—traditionally seen as a safe-haven asset during periods of economic uncertainty—has instead crashed.

Gold prices are down nearly 10% this week and are on track for the worst week in 43 years; since the outbreak of the conflict, gold has fallen a cumulative 13%.

In times of turmoil, investors typically buy gold, betting that it can preserve value when inflation surges, currencies depreciate, or a crisis hits. However, the spike in energy prices triggered by the conflict in the Middle East is prompting central banks around the world to reassess rate expectations, which is crucial for gold’s price direction.

The upheaval has also driven a rebound in the U.S. dollar and forced investors to readjust their holdings.

Here is the core logic:

• Traders expect the Federal Reserve to keep interest rates unchanged this year. This boosts the attractiveness of interest-earning assets such as bonds, while reducing the appeal of gold, which generates no yield.

  The Federal Reserve’s interest-rate policy has a major impact on the market. The Federal Reserve has held rates steady for two consecutive meetings. According to the CME Group’s FedWatch tool, traders have priced in that there will be no further rate cuts this year.

When the Federal Reserve cut rates three times in a row last fall, gold prices had surged sharply. Now, with market expectations that the Federal Reserve’s rates will stay elevated over the coming months, bond yields are moving higher, and the opportunity cost of holding gold is rising accordingly.

Fundstrat’s chief macro strategist Hardika・Singh said, “I think the recent plunge in gold prices was importantly driven by rising yields.”

It’s not only the Federal Reserve—central banks worldwide are adjusting policy interest rates due to the Iran war and the disruption in energy prices. Inflation concerns are forcing central banks to keep rates unchanged; some central banks, such as the Reserve Bank of Australia, even choose to raise rates.

• The U.S. dollar rebounded this month, making gold priced in dollars relatively more expensive for international investors.

  The dollar’s trend is another key factor affecting gold prices.

A weaker dollar is generally positive for gold because it lowers the cost for global investors to buy gold.

Since the outbreak of the Iran war, the dollar has risen 2.2%, ending months of declines. The dollar’s rebound is weighing on gold’s appeal.

Safe-haven demand, worries about inflation, and expectations of higher rates are all pushing the dollar higher. This is another signal the market is sending: traders are concerned that the Iran war could hit the global economy.

• Gold surged dramatically in the prior few months, but speculative sentiment has since cooled; investors may also be selling gold to offset losses in other assets.

  After two years of sustained gains, gold’s upward momentum is fading.

Gold surged 64% in 2025, marking the best annual performance since 1979, and it first touched $5,000 per troy ounce this January.

At least for now, market exuberance appears to be ebbing. On Friday, gold was around $4,570 per troy ounce, giving back all the gains from the prior two months.

The prior spike in gold prices was, to some extent, fueled by retail investors chasing the rally. In recent trading, the trend looks more like a meme-stock concept than a traditional safe-haven asset.

In a report, ING strategists said, “Upward momentum has already faded, and some investors are selling gold to raise cash or adjust their investment portfolios.”

However, many strategists still remain optimistic about gold’s outlook. The U.S. dollar’s rebound may fade, while geopolitical uncertainty remains high. Ed Yardeni, a senior figure on Wall Street, still keeps his target for gold prices to rise to $6,000 by year-end.

In the report, Yardeni said, “But if gold continues to ignore factors that should push gold higher—such as geopolitical turmoil, rising inflation, and a growing U.S. government debt burden—we will consider rolling back the year-end target to $5,000.”

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