Gold prices recorded a rebound this morning after a sharp decline of over 4% in the previous trading session. Traders are weighing a stronger US dollar against the demand for safer assets amidst escalating conflict in the Middle East. The price of gold surpassed $5,100 per ounce, with some capital re-entering the market at lower levels following the end of a four-day winning streak on Tuesday.
The reason for yesterday's significant drop lies in rising US dollar and US Treasury yields, which directly pressured gold. A broad sell-off in the stock market also forced some investors to liquidate positions on Tuesday to meet margin requirements for other parts of their portfolios. The Dow Jones Industrial Average plummeted nearly 1,300 points intraday, driving market panic to its highest level since April 2025. Concerns are twofold: fears that the conflict will continue to widen, and worries that inflationary pressures from disrupted energy supplies could resurge. The deep sell-off in US stocks compelled some investors to close out precious metal positions to meet margin calls elsewhere, temporarily weakening gold's safe-haven appeal and turning it into a tool for raising cash.
To avert a potential energy crisis, US President Trump stated that the US would provide naval escorts and insurance guarantees to ensure the safe passage of oil tankers and other vessels through the Strait of Hormuz. Due to the conflict, traffic through this strategic waterway, which is a transit route for about one-fifth of the world's oil and gas, had nearly halted. Following his remarks, crude oil, the US dollar, and US Treasury yields retreated significantly from their highs, and the decline in US stock indices narrowed.
Beyond safe-haven dynamics, the market is currently dominated by inflation concerns. The inflationary risk stemming from soaring energy prices could cap gold's gains, as this trend may force the Federal Reserve and its global counterparts to maintain current policies for longer, or even hike rates. Traders are pricing in an 80% probability that the Fed will cut rates by more than a quarter of a percentage point this year, but rising uncertainty has dampened rate cut expectations for other major central banks. Higher borrowing costs are typically negative for non-yielding precious metals.
Positive factors for gold still remain. While inflation may dampen Fed rate cut prospects, which is negative for gold, rising inflation itself is inherently positive for gold as an inflation hedge. Furthermore, with the Middle East conflict expanding—Iran declaring preparedness for a "long war" and Israel launching a "large-scale strike" on Tehran—the geopolitical uncertainty premium remains a key support for gold.
The market is currently in a tug-of-war phase: geopolitical risks provide support, while a strong US dollar and interest rates suppress gains. Gold prices are expected to fluctuate within a range of $5,000 to $5,300 per ounce, awaiting a new catalyst to break the balance. For short-term traders, a range-trading approach is advisable, selling near the top and buying near the bottom of the $5,000-$5,300 range, with follow-through only upon a breakout of key levels. For medium to long-term investors, short-term pullbacks do not alter the longer-term thesis, and a "phased accumulation" strategy can be employed.
