Against the backdrop of escalating Middle East geopolitical tensions, gold, traditionally seen as a safe-haven asset, would typically shine during times of conflict. However, Monday’s market witnessed a stunning reversal. Initially, former President Trump’s weekend ultimatum—threatening strikes on Iranian energy facilities within 48 hours—ignited market panic. This sent international oil prices soaring, inflation expectations surging, and dimmed prospects for Federal Reserve rate cuts, while the U.S. dollar index climbed sharply. As a result, spot gold suffered heavy losses, plummeting over 8.7% at one point to near $4,099 per ounce, approaching its 200-day moving average and hitting a four-month low. It marked the ninth consecutive daily decline, following its worst weekly performance since 1983 last week.

Just as investor sentiment neared despair, Trump unexpectedly announced on social media that—citing “productive” dialogue with Iran—he would postpone strikes on Iranian power plants and energy infrastructure by five days. This announcement cooled oil market fervor, causing oil prices to drop over 10% and the dollar index to retreat quickly. Gold prices staged a dramatic rebound, sharply narrowing losses, with spot gold eventually settling around $4,406.64 per ounce, while gold futures settled at $4,407.30. In early Asian trading on Tuesday, spot gold edged higher after an initial dip of 0.7% to $4,360, later rising 0.6% to trade near $4,430.

The pre-storm period saw energy fears fueling inflation expectations, putting gold through a difficult phase. At Monday’s opening, markets were clouded by Trump’s earlier 48-hour ultimatum threatening military action against Iranian energy infrastructure. This raised fears of major energy supply disruptions, sending international oil prices sharply higher, with Brent crude approaching historic highs. Rising energy costs heightened inflation concerns, leading markets to anticipate that the Federal Reserve might maintain higher interest rates for longer, or even consider rate hikes to curb inflation.

This triggered a repricing of Fed rate expectations. The U.S. dollar index, seen as a safe-haven and rate-sensitive currency, rallied strongly. For gold, however, this created a perfect storm. Although gold is traditionally viewed as an inflation hedge, its value is more directly impacted by interest rate expectations. Since gold pays no interest, its opportunity cost rises with higher risk-free rates, such as U.S. Treasury yields. As markets priced in fewer rate cuts or potential hikes, investors sold gold in favor of the dollar or Treasuries. Spot gold tumbled, at one point falling over 8.7% to a low near $4,099.02, a four-month low that brought it close to its 200-day moving average—a key technical support level. Last week’s performance was already the worst since 1983, and Monday’s decline deepened the slump. David Meger, Metal Trading Director at High Ridge Futures, noted, “The overnight sell-off was a continuation of long liquidation over recent sessions, driven by rate hike expectations.” It seemed the market was convinced a bear market for gold had just begun.

Then came the plot twist: Trump’s late-night statement abruptly reshaped market logic. In the early hours of Monday U.S. time, Trump posted on his social platform Truth Social that the U.S. and Iran had held “very good and productive” talks on “completely ending hostilities in the Middle East.” Accordingly, he had ordered a five-day delay to previously threatened strikes on Iranian power plants.

The announcement sent shockwaves across global markets, with effects comparable to a financial tsunami—but in the opposite direction. First, oil prices plummeted as the war premium supporting them evaporated, on reduced fears of near-term supply disruptions from attacks on energy infrastructure. Brent crude fell sharply, dropping over 10% and breaking below the key psychological level of $100 per barrel. The U.S. dollar followed, retreating as lower oil prices eased inflation concerns, reviving expectations for Fed rate cuts this year and causing the dollar index to give up earlier gains.

Most strikingly, gold staged a dramatic rebound. A weaker dollar made gold cheaper for holders of other currencies, and while reduced geopolitical risks dampened short-term safe-haven demand, the shift also reversed the core driver of gold’s decline—rate hike expectations. As Treasury yields retreated from multi-month highs, gold’s opportunity cost fell, allowing prices to recover. Gold sharply pared losses, narrowing from over 8% down to a 2% decline by the close, completing a textbook V-shaped reversal.

Yet the aftermath left doubts. Shortly after Trump’s statement, Tehran pushed back. Iranian Parliament Speaker Mohammad Baqer Qalibaf called it “fake news” on social media, suggesting it was an attempt to manipulate financial markets. Iran’s foreign ministry also denied any direct talks with the U.S. This contradiction leaves uncertainty: Was Trump’s statement overly optimistic or a form of expectation management? Does Iran’s denial mean risks could re-escalate? While direct talks remain unconfirmed, intermediaries such as Egypt, Pakistan, and Gulf states are reportedly relaying messages, with direct talks possible in Islamabad as early as this week, indicating communication channels are not entirely closed.

This uncertainty suggests market volatility is far from over. As Bob Doll, Chief Investment Officer at Crossmark Global Investments, noted, “Market volatility may persist; everything depends on oil prices. In the short term, other factors don’t matter much to investors. So when oil falls, stocks rise, and vice versa.” Markets remain on edge, with any developments on Iran likely to trigger sharp asset price swings.

Looking back at this tumultuous 24-hour period, it’s clear the main market driver is geopolitical risk and its impact on inflation expectations. The correlation between gold, oil, the dollar, and Treasury yields has grown exceptionally tight. Gold’s V-shaped move highlights its dual nature in the current macro environment: it rises when focus is on direct safe-haven demand from conflict, but falls when attention shifts to the “inflation-rate hike” logic triggered by conflict. Monday’s action exemplified the latter scenario, before partially reversing on Trump’s statement.

This roller-coaster serves as a warning to investors: in extreme, event-driven markets, any position is vulnerable. A single social media post from Trump can render technical and fundamental forecasts instantly irrelevant. Market focus remains squarely on Trump and Iran’s next moves, and how Fed officials interpret these developments. For gold, while it has temporarily escaped a four-month low, the path ahead remains unclear. Whether it can stage a sustained rebound depends on whether the Middle East crisis moves toward genuine de-escalation or merely pauses in the eye of the storm.

As of 07:38 Beijing time, spot gold was trading at $4,428.57 per ounce.