Gold prices entered a period of volatility following a four-day rally, as traders assessed the opposing influences of escalating Middle East conflicts and a strengthening US dollar on the precious metal. The price of gold initially dropped by 0.8% after having risen as much as 1.1% earlier. This week, the US Dollar Index has climbed nearly 1%, making dollar-denominated gold more expensive for most global buyers. Concurrently, rising US Treasury yields have also exerted pressure on non-yielding precious metals. On Tuesday, the price of silver experienced a sharp decline, plummeting up to 7.1%.

The Middle East conflict has provided underlying support for gold, contributing to a cumulative gain of over 3% in the previous four trading sessions as investors sought safe-haven assets. The US President stated that military actions would continue until objectives are met, while Israel announced a "wave of strikes" targeting Iranian command centers. Simultaneously, Iran attacked oil and gas infrastructure and threatened to block shipping through the strategic Strait of Hormuz.

However, a surge in energy prices—with the Brent crude benchmark surpassing $80 per barrel on Tuesday—has intensified US inflation concerns. This development has increased the likelihood that the Federal Reserve will maintain current interest rates for a longer period, a scenario that is typically negative for gold prices. Traders now anticipate the earliest potential Fed rate cut to occur in September, later than previous expectations.

Even prior to the US-Israeli strikes on Iran over the weekend, signs of resurgent US inflation were emerging. Data from the Institute for Supply Management indicated that input prices for manufacturers surged in February at the fastest pace since 2022. The CEO of JPMorgan Chase warned that inflation could become an unwelcome disruption to the US economy.

Since the start of the year, gold prices have increased by nearly a quarter. Sustained geopolitical and trade tensions, coupled with concerns regarding Federal Reserve independence, have collectively bolstered demand for gold. A broad-based sell-off in bonds and currencies, reigniting the "debasement trade," has injected fresh momentum into the multi-year gold rally.

Swiss private bank UBP SA noted in a report that if Middle East hostilities persist for several weeks, gold has "ample room" to challenge the all-time high above $5,595 per ounce reached in late January. On Monday, gold settled at its highest level in over a month.

Conversely, the General Manager of China Zhishui Investment Management suggested that gold could lose some upward momentum if the situation is contained. "The impact of geopolitical events, especially wars, is often front-loaded and quickly priced in," he stated. "If the situation does not escalate further, its influence on precious metals will gradually diminish over time."

Beyond disrupting energy supplies, the conflict has created physical transportation bottlenecks for precious metals. The United Arab Emirates, a major global gold trading hub, closed its airspace over the weekend, prompting several commercial airlines to suspend operations in the Gulf region. This has hindered the transport of gold and silver, which often relies on cargo space in passenger aircraft.

Representatives from multiple trading and logistics firms reported that metal shipments to and from Dubai have been suspended indefinitely. Informed sources, speaking on condition of anonymity due to lack of authorization, indicated that overland transport to other airports in the region is generally not feasible, as moving precious metals by road is considered a significant security risk.

The situation escalated further on Tuesday, with Iran intensifying strikes against Saudi Arabia in retaliation for US-Israeli actions. Two drones attacked the US embassy in the Saudi capital, Riyadh. The US President told media that the United States would respond.

As of 15:35 Singapore time, spot gold was down 0.1% at $5,316.38 per ounce. Silver fell 3.4% to $86.37 per ounce, while platinum and palladium prices also declined.