The ripple effects of surging oil prices are forcing cash-strapped investors to liquidate profitable holdings. If gold closes lower again today, it will mark a record tenth consecutive day of declines.

As concerns deepen over the Middle East conflict and its impact on inflation and global economic growth, the price of gold is approaching a historically long stretch of daily losses. During another highly volatile trading session, gold fell by as much as 2% in early trading, highlighting its inverse relationship with oil prices. However, by the European trading session on Tuesday, spot gold had regained positive momentum, climbing back above $4,400 per ounce.

A brief respite for gold, which has been battered by war-related concerns, came after the U.S. President announced a delay in strikes against Iran's power grid on Monday. However, this was quickly undermined when an Iranian official flatly rejected the possibility of negotiations. Furthermore, according to The Wall Street Journal, U.S. allies in the Persian Gulf could also be drawn into the conflict.

Soaring energy prices resulting from the conflict have heightened inflation risks, compelling investors to sell off liquid and profitable gold assets to cover losses in other parts of their portfolios. On Monday, gold fell 2%, marking its ninth consecutive day of decline. Since the outbreak of hostilities, the price of gold has dropped nearly 17% by Monday's close. Meanwhile, international oil prices resumed their upward trajectory on Tuesday.

Despite the announcement of a five-day "ceasefire," the direction of any potential negotiations and the future safety of shipping through the Strait of Hormuz remain highly uncertain. Simply repairing the damage to existing energy infrastructure will take considerable time. This implies that the threat of inflation will continue to weigh on gold prices. Concurrently, expectations for interest rate hikes from the Federal Reserve and other global central banks are rising, creating a significant headwind for non-yielding assets like gold.

Suki Cooper, Head of Global Commodities Research at Standard Chartered, noted, "This correction in gold has been more severe than previous ones." She added, "After markets experience extreme turbulence, it's common for gold to face four to six weeks of downward pressure, as it often acts as a source of liquidity during times of urgent need."

A similar pattern occurred following the outbreak of the Russia-Ukraine conflict in early 2022. After an initial surge, the safe-haven asset gold subsequently entered a prolonged period of decline lasting several months. The reason was the same: shockwaves from skyrocketing energy prices rippled through markets, exacerbating inflationary pressures.

Peter Kinsella, Global Head of FX Strategy at Union Bancaire Privée, pointed out, "In the face of such major crises, you typically see investors selling assets that are heavily weighted and have performed well, specifically to raise cash to meet margin calls on other losing assets, such as stocks and bonds."

He stated that gold's behavior was consistent, whether during the 2022 crisis or the 2008 global financial crisis. "Short-term price movements are all about position adjustments," he added, noting that the long-term fundamental rationale supporting gold remains unchanged.

Despite the recent weeks of decline, gold had experienced a long and strong bull run prior to this, supported by geopolitical tensions, trade frictions, and massive purchasing by central banks. It is noteworthy that some of the nations that have been "aggressively accumulating gold" are also major energy importers. The war has significantly increased their spending on oil and gas, meaning they have fewer U.S. dollar reserves available to continue purchasing gold.

From a technical perspective, gold is losing upward momentum, forming what some traders see as a classic bearish pattern where both intraday highs and lows are progressively lower. However, the price is still holding above its 200-day moving average. Commenting on this, independent market commentator and former J.P. Morgan precious metals trader Robert Gottliebs wrote in a post that this "provides a degree of reassurance for the near-term trend, indicating that the long-term technical support level remains intact."