Gold prices fell almost 2% on Monday as re-escalating tensions in the Middle East continue to fuel concerns over inflation and expectations of elevated interest rates.
Spot gold set a weekly low of $4,450/oz. during the early trading hours, before paring some losses. Three-month futures in New York also declined, holding just above $4,500/oz.
For the past three weeks, bullion has traded sideways within a tight range amid uncertainties surrounding a potential US-Iran peace deal, with moves driven mostly by headlines.
Gold, which is non-yielding, has more appeal to investors when interest rates are low. However, that scenario looks unlikely as long as the war persists, as central banks would be more inclined to keep rates high to combat the inflationary pressure.
The latest drop comes after the US said it launched another assault on Iranian military sites, further intensifying these inflation concerns. Both oil and the dollar rose on this development.
“The optimism surrounding negotiations between the US and Iran aimed at ending the standoff in the Strait of Hormuz faded over the weekend,” ActivTrades analyst Ricardo Evangelista said in a note to Reuters.
“As a result, energy prices rebounded, reviving inflation concerns and reinforcing hawkish Federal Reserve expectations,” he added.
Traders are now pricing in a Federal Reserve rate hike as early as this year, with a 39% chance of a quarter-point increase in December, according to CME Group’s FedWatch tool.
Market participants are set to monitor this week’s key data releases, as these could provide indications of the Fed’s monetary policy path and the implications for gold prices.
Despite the weakness in recent months, many are projecting the yellow metal to rise by the end of 2026, with banks like JPMorgan forecasting average prices of $5,000/oz. and Goldman Sachs setting a target of $5,400/oz.
Gold was on track to reach or exceed those targets after starting the year off strong, setting a record of nearly $5,600/oz. in January. However, the geopolitical tensions have placed a dent in expectations of another strong year like 2025, when prices surged 60%. So far in 2026, the metal is up 4.5%.
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