Gold is currently facing a classic yet severe macroeconomic shock: a strengthening US dollar, rising US Treasury yields, and a reassessment of global interest rate expectations following the Middle East conflict-driven oil price surge. This combination of factors has turned gold into a target for sustained selling, despite its typical role as a safe-haven asset during geopolitical crises.

As the Middle East conflict enters its fourth week, with the US and Iran exchanging threats of escalating attacks, gold has experienced sharp volatility early this week. After recording its worst weekly decline in over 40 years, spot gold hit a low of $4,319.32 per ounce on Monday (March 22), its lowest since early January, before recovering to trade around $4,410. In the previous week, gold plunged nearly 11%, marking its worst weekly performance since 1983. Since the conflict began on February 28, gold has fallen by nearly 15%.

This volatile price action aligns with broader market trends. Crude oil retreated after modest early gains, and global stock markets also saw increased fluctuations, reflecting investor uncertainty regarding the Middle East situation and macroeconomic outlook. The Bloomberg Dollar Spot Index was largely flat early in the week after a 0.5% decline the prior week, but the dollar remained strong overall, exerting pressure on gold. Meanwhile, gold has fallen for eight consecutive sessions since the conflict began, indicating ongoing short-term reduction of long positions. Analysts note that the decline is not only due to higher yields and a stronger dollar but also forced selling by some investors to cover losses in other assets.

Typically, escalating geopolitical crises enhance gold's safe-haven appeal, but the current market backdrop complicates this dynamic. The war has driven up international oil prices, reigniting inflation concerns and forcing markets to abandon expectations of near-term interest rate cuts by the Federal Reserve and other major central banks. Instead, investors are now pricing in prolonged high interest rates, or even potential policy tightening.

This is the core reason for gold's current weakness. The yield on the 10-year US Treasury note has risen to around 4.39%, and the dollar has strengthened amid a combination of safe-haven demand and inflation worries. In this environment, gold has lost one of its key supports: market expectations for lower interest rates. Since gold does not generate interest income, its opportunity cost increases when investors can earn higher returns from cash and government bonds.

In other words, the market is not simply trading on the notion that "declining risk appetite equals higher gold prices." Instead, it is experiencing a repricing of inflation driven by energy shocks. Higher oil prices increase the risk of persistent inflation; more persistent inflation, in turn, raises the likelihood of prolonged high interest rates. This macroeconomic chain reaction is marginally unfavorable for gold.

Beyond macroeconomic factors, the recent decline in gold also reflects liquidity pressures and profit-taking. Gold had previously experienced a strong rally, reaching a record high in late December 2025, with major international banks such as JPMorgan and UBS raising their long-term price targets. This made gold an overcrowded long trade in the market.

When an asset has seen substantial gains, concentrated positioning, and significant paper profits, even a slight shift in the macroeconomic environment can trigger a sharp correction. Gold's rapid decline from its highs exemplifies this fragile structure breaking down.

Additionally, since the conflict began, overall market volatility has increased significantly, with stocks and bonds also facing sell-offs. This has prompted some investors to sell gold to cover losses in other parts of their portfolios, amplifying the decline in gold prices.

Over the weekend, the Middle East situation escalated further. US President Trump demanded that Iran reopen the Strait of Hormuz within 48 hours, threatening to target Iranian power plants otherwise. Trump issued the ultimatum at 7:44 PM New York time on Saturday.

Iran responded firmly, warning that if its power facilities were attacked, it would "completely" close the Strait of Hormuz and target energy, information technology, and desalination infrastructure. The exchange of threats has heightened market concerns about further escalation, adding uncertainty to gold's future trajectory.

According to Capital.com analyst Kyle Rodda, technical indicators suggest gold may be poised for a short-term rebound, but the key determinant of its next move will be whether Trump follows through on his threat to strike Iranian power plants.

From a technical perspective, gold's 14-day Relative Strength Index (RSI) has fallen below 30 and continues to decline. For many traders, this level indicates an oversold market, suggesting the potential for a technical rebound.

At the same time, US government data released on Friday showed that hedge funds and other large speculators increased their net long positions in gold to a seven-week high in the week ending March 17. This indicates that, despite the price decline, a significant number of investors continue to bet on a medium- to long-term rebound in gold.

However, technical oversold conditions do not necessarily signal a trend reversal. In the short term, gold is likely to remain caught between two opposing forces: pressure from rising yields, a strong dollar, and diminished expectations for rate cuts on one side, and potential safe-haven demand fueled by further escalation in the Middle East conflict on the other.

If oil prices continue to rise, US Treasury yields keep climbing, and markets further reduce bets on rate cuts—or even begin pricing in rate hikes—gold may remain under pressure or continue to trade with high volatility. This represents the most immediate bearish scenario.

Alternatively, if the conflict worsens enough to broadly undermine risk appetite, disrupt credit markets, or weaken confidence in financial assets overall, gold could regain strong safe-haven support even amid high interest rates. In other words, mild to moderate geopolitical tensions have recently favored the dollar over gold, but if the situation escalates into a deeper systemic risk, market sentiment could shift back in favor of gold.

Overall, gold has not lost its long-term value as a portfolio asset but is temporarily caught between the headwinds of high interest rates and the support of safe-haven demand. The key factor determining gold's next direction will not be the war itself, but whether the market focuses more on "higher interest rates" or "deeper systemic fear."