Gold extended its decline for a ninth consecutive session, wiping out all gains made this year, as escalating Middle East tensions heightened inflation risks and reinforced expectations of interest rate hikes. During Asian trading hours, the precious metal plunged nearly 5%, falling below $4,300 per ounce. The surge in energy prices since the outbreak of the conflict has reduced the likelihood of near-term interest rate cuts by the Federal Reserve and other central banks. This has negatively impacted gold, a non-yielding asset, which just recorded its largest weekly drop since 1983.
Gold's volatile performance aligns with broader market movements: crude oil fluctuated near its highest closing level since mid-2022, while equity markets also experienced instability. Part of gold’s decline over the three weeks since the conflict began on February 28 stems from forced selling by investors covering losses in other parts of their portfolios. At the end of last year, gold closed at $4,319.37 per ounce.
Wayne Gordon, an investment advisor at UBS Group's wealth management division, commented, "The scale of this gold sell-off is not unprecedented, but the speed of the decline is much faster than in most historical periods."
Over the weekend, the U.S. President issued a 48-hour ultimatum to Iran, demanding it reopen the Strait of Hormuz or face airstrikes on Iranian power plants. Iran responded by warning that if its electrical infrastructure were attacked, it would "completely" shut down the strategic waterway and target energy, information technology, and desalination facilities. The ultimatum was delivered at 7:44 p.m. New York time on Saturday.
David Wilson, head of commodity strategy at BNP Paribas, noted that gold's reaction to the current macroeconomic shock "has clear precedents in the market." He stated, "Looking back at the three previous economic shock cycles—2008, 2020, and 2022—gold initially fell as markets reacted to the news, with investors typically selling assets to hold U.S. dollars." He added that in each of those periods, gold subsequently experienced a sustained rebound.
Gold's 14-day Relative Strength Index, a gauge of market momentum, fell further below 30, a level some traders consider indicative of oversold conditions. Meanwhile, weekly data released by the U.S. government on Friday showed that hedge funds and other large speculators increased their net-long positions in gold to the highest level in seven weeks as of March 17.
At 2:13 p.m. Singapore time, spot gold plummeted 4.8% to $4,275.56 per ounce; silver dropped 7% to $63.19 per ounce; platinum and palladium also declined. The Bloomberg Dollar Spot Index, which tracks the U.S. currency's performance, rose 0.3%.
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