TLDR
- The precious metal faces its first weekly decline in more than a month, falling approximately 3%
- The US dollar’s 1.5% weekly surge is pressuring gold valuations
- Escalating conflict between the US-Israel alliance and Iran has driven oil prices upward while dampening rate cut prospects
- Market participants now anticipate only 35 basis points in Fed rate reductions by December, a significant drop from 60 basis points last week
- Market participants are liquidating gold holdings to generate cash for covering shortfalls in other asset classes
The yellow metal has enjoyed a stellar performance this year, but the current week has proven challenging. Gold is poised for its first weekly decline since the final week of January, despite ongoing military escalation in the Middle East.
Spot gold was hovering near $5,089 per ounce during Friday’s London trading session, showing a modest 0.2% daily gain while remaining down approximately 3% for the week. This positions the precious metal to end its four-week rally.
The decline is particularly noteworthy given gold’s traditional role as a protective asset during periods of geopolitical turmoil and market uncertainty. Market experts point to several converging factors driving the current weakness.
The greenback has experienced a powerful rally this week, climbing 1.5% — marking its most substantial weekly advance since October 2024. When the dollar strengthens, gold becomes costlier for international buyers, typically applying downward pressure on valuations.
US Treasury yields have maintained an upward trajectory for four consecutive sessions, reaching multi-week peaks. Elevated yields increase the opportunity cost of maintaining gold positions, since the metal generates no income or interest payments.
Iran Conflict Sparks Inflation Concerns, Diminishes Rate Cut Expectations
The continuing military confrontation involving the US-Israel partnership against Iran has propelled oil prices significantly higher. Crude oil is tracking toward its largest weekly increase since 2022. The strategically vital Strait of Hormuz, through which substantial global oil supplies flow, remains effectively blocked.
Iranian forces have targeted energy facilities across multiple nations. President Donald Trump indicated his administration expects involvement in determining Iran’s future leadership, while his advisors explore options for addressing escalating fuel costs.
Rising oil prices are intensifying concerns about inflation. This development has prompted traders to dramatically reduce their expectations for Federal Reserve monetary easing. The CME FedWatch tool currently indicates a 69% probability the Fed maintains current rates at its June policy meeting, up sharply from 43% one week earlier.
Interest rate reductions typically provide support for gold prices. Diminished expectations for such cuts create challenging conditions for the precious metal.
Market Participants Liquidating Gold to Generate Liquidity
Adrian Ash, a researcher at BullionVault, characterized the sell-off as typical 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’s strong year-to-date performance positioned it as one of the limited assets traders could liquidate while still booking profits.
The precious metal maintains gains of nearly 20% for the year. This week’s broad-based equity market downturn has also compelled some market participants to tap gold positions as a liquidity source.
Silver advanced 1.1% on Friday, reaching $83.08 per ounce. Platinum and palladium also posted gains.
The Israeli defense forces announced Friday they are transitioning to the “next phase” of their Iran operations. Defense Secretary Pete Hegseth indicated US military assets in the region are “about to surge dramatically.”
