Gold Hits Lowest Point This Year as Rate-Hike Bets Surge Amid Middle East Tensions

Gold prices plunged to their weakest level in 2026, dropping more than 5% as renewed conflict in the Middle East shifted market expectations toward interest rate hikes. The metal’s steep slide marks its worst weekly performance in decades, raising questions about its role as a safe haven in turbulent times.

Sharp Drop Driven by Middle East Conflict and Inflation Worries

Gold tumbled sharply last week, falling below $4,400 an ounce for the first time since early January. The decline extended a losing streak that has dragged the precious metal down for nine straight trading sessions, marking its biggest weekly loss since 1983. The catalyst: escalating tensions in the Middle East, specifically after US and Israeli military actions against Iran prompted the Pentagon to deploy three warships and thousands of Marines to the region.

That move caused a surge in energy prices, with oil hovering near $100 a barrel. Higher energy costs stoke inflation fears globally, pushing investors to bet that the Federal Reserve and other central banks will raise interest rates instead of cutting them. Since gold doesn’t offer interest, the prospect of higher rates dents its appeal.

"Expectations have shifted from rate cuts to rate rises, which is undermining gold’s appeal from a yield perspective," said Tim Waterer, chief market analyst at KCM Trade. The prospect of prolonged conflict and rising inflation means traders are pricing in tighter monetary policy, sending bond yields and the dollar higher, both of which weighed on gold.

Gold’s Safe-Haven Status Tested Amid Volatility

Despite gold’s traditional role as a hedge against geopolitical risk, the metal has been on a downward spiral since the start of the Iran war last month.

The conflict initially caused a spike in prices, confirming gold’s status as a geopolitical hedge. But as the situation dragged on, investors began rethinking their positions.

Robert Gottlieb, a former precious-metals trader at JPMorgan Chase, warned against attempting to buy on the dip. "There’s way too much volatility," he said. "Until prices stabilize, there may be more selling." The recent volatility reflects uncertainty about how long the war will last and its economic fallout.

Gold-backed exchange-traded funds (ETFs) have seen consistent outflows, erasing all gains made since the start of the year. Bloomberg data shows global ETF holdings dropping by more than 60 tons over the past three weeks. Investors appear to be reallocating funds toward assets that benefit from rising rates, such as the US dollar and government bonds.

Historical Context: Parallels with Past Energy Shocks

The current gold slump echoes patterns seen during previous geopolitical crises. For instance, the 2022 invasion of Ukraine by Russia triggered an energy shock that rippled through global markets, causing a seven-month losing streak for gold. That was the longest such slide on record.

This time, the war in the Middle East has unleashed a similar dynamic. Rising oil prices fuel inflation worries, prompting central banks to consider tightening monetary policy rather than easing. The Federal Reserve left interest rates unchanged at its mid-March meeting but emphasized that rate cuts would depend on progress in reducing inflation. That stance keeps rate hikes on the table, pressuring gold.

Even with the recent losses, gold remains about 5% higher for 2026. The metal surged to nearly $5,600 an ounce in late January, boosted by strong investor demand, central bank purchases, and political concerns surrounding Fed independence during the Trump administration.

But the current environment is testing whether gold can maintain those gains amid rising yields and a strong dollar.

What Comes Next for Gold?

Market watchers are divided on gold’s near-term prospects. If the Middle East conflict deepens and energy prices climb further, gold could regain some safe-haven demand. But if central banks follow through on rate hikes to combat inflation, the cost of holding non-yielding assets like gold will rise, potentially driving prices lower.

Yuxuan Tang, Asia head of rates and FX strategy at JPMorgan Private Bank, noted that gold’s geopolitical hedge function remains intact but cautioned that prolonged conflict might shift market focus toward economic risks and inflation pressures.

For now, investors face a volatile landscape. The metal’s recent slide highlights the complex interplay between geopolitical risk, inflation fears, and monetary policy expectations. How gold navigates these headwinds could shape its path for the rest of the year.

Gold’s sharp fall to its lowest point this year reflects a market caught between rising geopolitical risks and hawkish monetary policy signals. Whether the metal can reclaim its safe-haven status depends on how the Middle East conflict and inflation pressures evolve in the months ahead.