Gold prices dropped sharply on Monday as oil surged above $100 per barrel for the first time in four years, the US dollar climbed to a three-month high, and global bond yields rose amid intensifying conflict in the Middle East. The selloff came on the 10th day of the new regional war involving the US, Israel, and Iran. Investor anxiety deepened after Tehran named Mojtaba Khamenei as Iran’s new Supreme Leader, succeeding his father, a move widely seen as reinforcing the country’s hardline leadership and reducing hopes for any near-term diplomatic compromise.
Spot gold fell as much as 3% in London trading to around $5,016 per troy ounce before recovering part of its losses to trade near $5,041-$5,103 by midday. US gold futures for April delivery also declined, falling about 2.1% to $5,049.40 per ounce. Overall, dollar-priced gold has now dropped roughly 2.2% since the start of the military campaign, even as geopolitical risks remain elevated.
The decline highlights a familiar pattern in times of crisis. While gold is traditionally viewed as a safe-haven asset, it can initially come under pressure as investors rush for liquidity. Jeff Toshima, former Tokyo director of the World Gold Council, noted that gold is often sold immediately after a crisis begins as investors seek cash to cover losses elsewhere, describing the metal as “an ATM” in periods of market stress.
That pattern appeared to play out again last week, with investors liquidating holdings in the giant SPDR Gold Shares ETF (GLD) at the fastest pace since February 2021, reducing its holdings by 28 tonnes over five trading sessions.
Gold’s weakness coincided with a dramatic spike in energy prices. US crude oil jumped as much as 31.4% to $119 per barrel before easing back toward $100 after reports that G7 finance ministers were discussing a coordinated release of strategic petroleum reserves through the International Energy Agency.
The oil rally has reignited inflation fears across global markets. Higher energy prices could feed into consumer costs and complicate the outlook for central banks, particularly the US Federal Reserve. Investors now increasingly expect the Fed to keep interest rates unchanged at its upcoming meeting ending March 18, with markets also raising the probability that rates will remain on hold into June.
Those expectations helped drive the US dollar index near its highest level in three months. A stronger dollar makes gold more expensive for buyers using other currencies, typically reducing international demand. At the same time, yields on 10-year US Treasury bonds climbed to their highest in nearly a month, increasing the opportunity cost of holding non-yielding assets such as gold.
Bart Melek, global head of commodity strategy at TD Securities, said rising bond yields and a stronger dollar usually weaken investor appetite for bullion, especially when surging energy prices are driving inflation concerns.
Broader financial markets also reflected the surge in risk aversion. European stocks fell 2.2% on the Euro Stoxx 600, while in Asia, Japan’s Nikkei 225 plunged 5.2% and South Korea’s Kospi dropped 6.0%.
The losses were especially severe in Japan and South Korea because both economies are heavily dependent on Middle Eastern oil shipped through the Strait of Hormuz, which is now closed. Roughly 95% of Japan’s crude imports and 70% of South Korea’s come from the region, making both countries particularly vulnerable to supply disruptions and rising fuel costs.
Despite gold’s short-term weakness, analysts say the broader outlook for bullion remains constructive if the conflict persists and inflationary pressures worsen.
Recent geopolitical conflicts show that gold does not always react the same way in the early stages of war. During the first two weeks of the US-led invasion of Iraq in March 2003, gold dropped as much as 4.7% against the dollar. During last June’s brief Midnight Hammer strikes against Iran’s nuclear programme, gold fell as much as 2.9% within five sessions.
By contrast, when Russia launched its full-scale invasion of Ukraine in February 2022, gold rose 7% in the first 10 days and retested what was then its all-time high near $2,070 per ounce.
That divergence underscores how much gold’s short-term direction depends not only on geopolitical fear, but also on the simultaneous moves in the dollar, bond yields, and broader market liquidity conditions.
Other precious metals also fell sharply on Monday. Silver, which derives nearly 60% of annual demand from industrial uses, dropped as much as 5.6% in early trading before trimming losses. Platinum fell 3.8% to $2,054.65 per ounce, while palladium lost 2.1% to $1,590.32.
In the UAE, the global selloff brought some relief to retail buyers after local prices had approached record levels earlier this month. Dubai’s 24K gold price fell about Dh10 per gram to Dh613.25 on Monday morning, down from Dh623.25 a day earlier. The 22K rate also dropped by roughly Dh10 to Dh567.75. The retreat followed a strong rally in recent weeks that had pushed 24K gold to a high of Dh641 per gram. Although local prices have now eased, they remain well above February levels.
Analysts caution that the current decline may prove temporary. Mohanad Yakout, senior market analyst at Scope Markets, said gold is currently caught between two opposing forces: safe-haven demand from war risks and the pull of dollar liquidity.
According to Yakout, the stronger greenback is currently outweighing geopolitical support for bullion. Still, that balance could shift if the conflict drags on and leads to broader disruptions in trade and energy supply. Longer-term fundamentals remain supportive as well. Gold is still up about 18% since the start of the year, supported by geopolitical uncertainty and persistent central bank buying. China’s central bank, for example, extended its gold-buying streak to 16 months in February, reinforcing structural demand for bullion.
Yakout said continued central bank diversification and concerns over currency debasement could help establish current prices as a floor for another leg higher, with potential for gold to move toward the $5,500 to $6,000 range if tensions remain elevated.
For now, however, Monday’s trading showed that in the immediate aftermath of a geopolitical shock, investors are prioritizing cash, dollars, and yield over traditional haven buying, leaving gold under pressure even as the world grows more unstable.