International gold prices fell below $4,100 during Wednesday's trading session, hitting their lowest level since November of last year and officially entering their first bear market in four years. The market widely believes that inflationary pressures driven by rising energy costs will compel the Federal Reserve to raise interest rates by 25 basis points this year. While gold is traditionally viewed as a hedge against inflation, interest rate hikes typically exert downward pressure on such non-yielding assets.

Global Tightening Cycle

The most active August gold contract on the New York Mercantile Exchange fell 3.6% on Wednesday to settle at $4,133.30 per ounce, marking its fourth consecutive day of decline. According to Dow Jones Market Data, this represents the lowest closing price since November 2025 and confirms a bear market, with prices down more than 20% from the recent high in March. The transition from peak to bear market took only 91 days, the fastest such shift since the peak of the 2008 financial crisis, which took 23 days.

As the conflict between the US, Israel, and Iran continues, market concerns over rising inflation and central bank interest rate hikes have intensified.

Lukman Otunuga, Senior Research Analyst at FXTM, stated, "Despite geopolitical tensions fostering safe-haven sentiment, gold remains constrained by escalating inflation risks. Renewed hostilities between the US and Iran have essentially dashed efforts to end the conflict."

Ewa Manthey, Commodities Strategist at ING, believes the market's focus has shifted from pure safe-haven demand to interest rates and inflation, keeping pressure on precious metals. "The escalation in the Middle East is pushing up oil prices and exacerbating inflation risks, leading the market to anticipate that global central banks will maintain tight monetary policy for a longer period. Rising real yields are a clear negative for non-yielding assets like gold and silver."

Data from the CME FedWatch Tool shows a 98.2% probability that the Federal Reserve will keep its benchmark rate unchanged at next week's FOMC meeting. Traders expect the Fed to initiate a rate hike in December. Meanwhile, data from LSEG indicates that a 25 basis point rate hike by the European Central Bank at its monetary policy meeting on Thursday is now largely a market consensus.

Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, noted that sustained geopolitical tensions supporting oil prices imply that high inflation will be more persistent, making it difficult for the Fed to cut rates. Consequently, capital continues to favor US Treasuries. Gold offers no interest income, so its opportunity cost increases when interest rates rise.

The current US-Iran conflict has now lasted over a hundred days. Prior to the outbreak of hostilities, the market had expected the Fed to adopt a more dovish stance later this year. "Geopolitically-driven buying has taken a back seat; the market is now dominated by macro factors: rising yields and heightened rate hike expectations, which are outweighing safe-haven demand. In the short term, precious metals remain vulnerable to further declines unless yields fall significantly or US inflation data weakens," Manthey said.

Raj Abrol, CEO of the global risk management platform Galytix, stated that the movement of gold and silver is consistent with the logic of global credit tightening. "Rising real yields combined with a stronger dollar increase funding costs for all entities reliant on dollar financing—emerging markets, leveraged credit, and those facing refinancing pressure within the next year. The precious metals market is most sensitive to this."

Asset Deleveraging

Last Friday's stronger-than-expected US jobs data further reinforced expectations for rate hikes, triggering a new wave of collective selling across global assets.

Michael Armbruster, Co-founder and Managing Partner at futures brokerage Altavest, observed that gold is moving in sync with the stock market. Analysis based on FactSet data shows a correlation coefficient of 0.91 between gold futures and the Nasdaq index since early June, around the time the Nasdaq 100 peaked. A reading of 1.00 indicates perfect synchronization.

In emailed comments on Wednesday, Rajeev Sornley, Head of International Investment Research at digital asset manager Wave Digital Assets, noted a significant increase in the correlation between various asset classes and stock market movements recently. "This is a classic case of market-wide deleveraging: excessive prior positioning and high leverage are forcing investors to sell quality assets to cover losses in other positions, essentially a concentrated market sell-off. Technically, both gold and silver prices have broken below their 200-day moving averages, a key indicator historically used to gauge shifts in medium-to-long-term trends and market tempo."

Alex King, Investment Strategy Analyst at Wellington Management, cautioned investors against simply categorizing commodities as geopolitical or inflation trades, advising a separate analysis of the core drivers and asset allocation value of assets like gold. "Gold has been in a general bull market since late 2022, initially supported by central bank purchases and later by ETF inflows. However, when positioning becomes excessively crowded, the market can experience deep corrections."

Citigroup issued a research note this week, lowering its three-month gold price target from $4,300 to $4,000 per ounce. The rationale cited was that the stalemate in the Strait of Hormuz and high energy prices have boosted market expectations for a Fed rate hike this year. The note also warned that if the Strait of Hormuz blockade persists until late summer, gold prices could fall to $3,500 per ounce. This marks the second time in just one month that Citigroup has revised its gold price forecast.

However, Alex King believes there is still upside potential for gold: "The restructuring of central bank foreign exchange reserves is a key variable. The gold market is much smaller than the US Treasury market. Even minor portfolio adjustments by major Treasury holders like China and Japan could have a significant impact on gold prices. The current strong dollar regime could also reverse. Once the dollar weakens and its status as the reserve currency loosens, gold's appeal as an alternative store of value will increase again."

Armbruster predicted that gold's price action could mirror 2008. That year, gold initially sold off alongside stocks, bottomed in November, and then embarked on a sustained uptrend. "Our view for some time has been that gold will face pressure in June, but the macroeconomic backdrop will turn significantly more favorable in the second half of the year."