TLDR
- The precious metal faces its first weekly decline in more than a month, losing approximately 3%
- Dollar strength, up 1.5% for the week, pressures gold valuations
- Rising oil prices from the Iran-Israel conflict have dampened Federal Reserve rate cut prospects
- Market expectations for Fed cuts have dropped to 35 basis points by December, down from 60 last week
- Certain traders are liquidating gold holdings to generate cash for covering losses elsewhere
Despite a stellar year overall, gold is experiencing a challenging week. The yellow metal is set for its first weekly decline since the end of January, even as Middle East hostilities continue to intensify.
On Friday morning in London, spot gold traded near $5,089 per ounce, showing a modest 0.2% daily increase but remaining approximately 3% lower for the week. This performance ends a four-week rally.
The decline appears counterintuitive given gold’s traditional role as a crisis hedge during periods of geopolitical turmoil and market stress. Market experts point to several interconnected factors driving the selloff.
The greenback has posted significant gains this week, advancing 1.5% — marking its strongest weekly performance since October 2024. When the dollar appreciates, gold becomes more costly for international buyers using alternative currencies, typically suppressing demand.
US Treasury yields have also advanced for four consecutive sessions, reaching multi-week highs. Rising yields increase the opportunity cost of holding gold, an asset that generates no income.
Iran War Raises Inflation Fears, Pushes Back Rate Cut Bets
The continuing Iran-Israel-US conflict has driven oil prices substantially higher. Crude oil is tracking toward its largest weekly gain since 2022. The Strait of Hormuz, a critical passage for global petroleum shipments, remains effectively blocked.
Iran has also launched attacks on energy facilities across multiple nations. President Donald Trump indicated he anticipates involvement in selecting Iran’s future leadership, while his administration explores options to address escalating fuel expenses.
Rising petroleum costs are stoking inflation concerns. This development has prompted market participants to reduce their Federal Reserve interest rate cut forecasts. According to the CME FedWatch tool, there’s now a 69% probability the Fed maintains current rates at its June policy meeting, compared with 43% seven days ago.
Interest rate reductions typically benefit gold prices. Diminished cut expectations create downward pressure.
Investors Selling Gold to Raise Cash
Adrian Ash, a researcher at BullionVault, said the sell-off reflects crisis behavior. “What we’re seeing right now is classic crisis trading: investors cutting risk, selling whatever they can for cash and covering margin calls elsewhere,” he said.
He noted that gold’s strong year-to-date performance made it one of the limited assets traders could liquidate while still booking profits.
The precious metal remains up nearly 20% for the year. A widespread equity market correction this week has also prompted certain investors to tap gold positions for liquidity needs.
Silver climbed 1.1% on Friday to reach $83.08 per ounce. Platinum and palladium posted gains as well.
The Israeli military announced Friday it is advancing to the “next phase” of its Iran campaign. Defense Secretary Pete Hegseth stated US military presence in the region is “about to surge dramatically.”
