TLDR
- Gold faces its first weekly decline in over a month, falling approximately 3% this week
- The US dollar has strengthened by 1.5% this week, creating pressure on gold valuations
- Escalating Middle East conflict involving the US and Israel against Iran has elevated oil prices while dampening Federal Reserve rate cut prospects
- Market participants now anticipate only 35 basis points of Federal Reserve cuts by year-end, compared to 60 basis points projected last week
- Certain market participants are liquidating gold positions to generate cash for covering shortfalls in other asset classes
The precious metal has delivered impressive returns this year, yet this week marks a challenging period. Gold is experiencing its first weekly decline since late January, occurring simultaneously with intensifying Middle East hostilities.
Spot gold traded near $5,089 per ounce during Friday morning London sessions, gaining 0.2% for the day while remaining approximately 3% lower for the week. This performance ends a four-week consecutive rally.
The decline appears counterintuitive given gold’s traditional role as a safe haven during periods of conflict and market turbulence. Market analysts attribute the sell-off to multiple converging factors.
The US dollar has rallied significantly this week, advancing 1.5% — marking its most substantial weekly increase since October 2024. Dollar strength makes gold more costly for purchasers using alternative currencies, typically creating downward price pressure.
US Treasury yields have risen for four consecutive sessions, reaching multi-week peaks. Elevated yields increase the opportunity cost of holding gold, an asset that generates no income stream.
Middle East Conflict Fuels Inflation Concerns, Diminishes Rate Cut Expectations
The escalating military engagement between the US-Israel alliance and Iran has propelled oil prices substantially higher. Crude oil is tracking toward its largest weekly advance since 2022. The Strait of Hormuz, a critical conduit for global petroleum transport, has become effectively impassable.
Iran has conducted strikes on energy facilities across multiple nations. US President Donald Trump indicated he anticipates participating in the selection of Iran’s future leadership, while his administration explores strategies to address climbing fuel expenses.
Elevated oil prices are intensifying inflation concerns. This dynamic has prompted market participants to reduce their Federal Reserve interest rate cut projections. The CME FedWatch tool indicates a 69% probability the Fed maintains current rates at its June gathering, increasing from 43% merely one week earlier.
Interest rate reductions typically provide support for gold prices. Diminished cut expectations create obstacles for the precious metal.
Market Participants Liquidating Gold to Generate Liquidity
Adrian Ash, a researcher at BullionVault, characterized the sell-off as crisis-driven 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 had already posted substantial gains this year, positioning it as one of the limited assets traders could liquidate while still realizing profits.
Gold maintains nearly 20% gains year-to-date. A widespread equity market downturn this week has prompted certain investors to tap gold holdings as a liquidity source.
Silver climbed 1.1% on Friday to $83.08 per ounce. Platinum and palladium also posted advances.
The Israeli military announced Friday it is advancing to the “next phase” of its Iran campaign. Defense Secretary Pete Hegseth stated US military capabilities in the region are “about to surge dramatically.”
