Gold steadied at the start of the week, holding onto its first weekly gain since the Middle East war began more than a month ago, as bargain hunters returned after one of the sharpest selloffs in years. Although bullion has managed a modest recovery, the market remains caught between renewed investment demand and persistent pressure from rising energy prices, higher bond yields, and uncertainty over central bank behavior.
Spot gold was trading near $4,500 an ounce in early dealings, after a strong rebound in the previous session. The metal’s stabilization comes after a painful correction that has shaken confidence in gold’s traditional role as a haven.
In Singapore trading, spot gold was little changed at $4,494.10 an ounce, while in European hours, prices climbed to around $4,550.71, up about 1.3% on the day. The move extended Friday’s 2.65% gain, which marked gold’s third advance in four sessions and followed a rebound from a four-month low of $4,098.23 per ounce. That late-week recovery allowed bullion to finish last week little changed overall, ending a three-week streak of weekly losses. Even so, the damage from the recent selloff remains substantial. Gold has fallen about 15% this month and, at one stage, had dropped 19% from its January closing peak, bringing it close to the 20% decline commonly associated with a bear market.
Gold’s weakness has surprised many investors because the conflict in the Middle East would normally be expected to support safe-haven assets. Instead, bullion has largely moved in tandem with stocks and inversely to oil. The reason is that the war has triggered a broader market shock. Investors facing losses across equities, bonds, and currencies have sold gold to raise liquidity and cover margin calls. At the same time, surging oil and gas prices have fueled inflation concerns, pushing bond yields higher and making non-yielding gold less attractive relative to interest-bearing assets. This environment has undermined gold’s defensive appeal in the short term, even as geopolitical risks remain elevated.
Geopolitical uncertainty continues to dominate sentiment. Pakistan, Egypt, and Saudi Arabia have held talks aimed at finding a path out of the conflict, raising hopes for a diplomatic opening. At the same time, the United States has moved additional military personnel into the region, while Yemen’s Iran-backed Houthi group has entered the conflict, highlighting the risk of wider escalation.
Investors are also assessing the possibility of a fresh round of negotiations between the United States and Iran in Pakistan. Any sign of de-escalation could provide further support to gold by reducing panic selling and encouraging longer-term buyers to rebuild positions.
Another major factor affecting gold is the strength of the US dollar. The Bloomberg Dollar Spot Index rose 0.7% last week, although the broader dollar index slipped about 0.2% on Monday, retreating from a two-week high of 100.34. That modest dollar pullback helped support gold’s recovery.
Interest-rate expectations are also in focus. According to the CME FedWatch tool, markets are pricing a 96% probability that the Federal Reserve will leave rates unchanged at its April meeting, with only a 4% chance of a 25-basis-point hike. Investors are now waiting for remarks from Federal Reserve Chair Jerome Powell, who is scheduled to speak later in the day at an event hosted by Harvard University. Any indication that US rates may remain higher for longer would pose a challenge for bullion, which pays no interest.
One of the biggest concerns in the gold market is the possibility that central banks could reduce purchases or even begin selling reserves as the war drives up energy costs and strains external balances. Some countries that had been major gold buyers are also large energy importers, meaning higher oil and gas bills could leave them with fewer dollars available to buy bullion. Turkey has become the clearest example of this trend. In the two weeks after the Iran war began, Ankara sold and swapped more than $8 billion in gold to support the lira.
Analysts note that swaps generally have limited direct price impact, since the gold is often used as collateral and not immediately sold into the market. Outright sales, however, are more significant and can weigh heavily on market sentiment. For now, many analysts believe the more likely outcome is a slower pace of central bank accumulation rather than a broad shift to sustained selling.
Gold’s recent weakness has also been intensified by heavy selling through exchange-traded funds and speculative futures positions. Gold-backed ETFs, which had seen inflows in all but one of the previous 14 months, are now on track for their biggest monthly outflow since 2022. Those outflows have erased all of this year’s ETF inflows, according to Bloomberg calculations. ETF investors tend to be especially sensitive to changes in interest rates, which helps explain the scale of the retreat.
Hedge funds have also been cutting their bullish bets. The latest positioning data show gold exposure among managed money accounts has fallen to the lowest level since October. Still, some investors see that washout as a sign that the worst of the selling may be over.
Despite the near-term pressure, a growing number of analysts and money managers argue that gold’s long-term bullish case remains intact. Fidelity International money manager George Efstathopoulos said the correction could prove a “buying opportunity” once tensions in the Middle East ease, citing structural support from inflation risks, fiscal pressures, and weakening confidence in sovereign debt markets.
Daniel Pavilonis, senior market strategist at RJO Futures, said the decline below the 200-day moving average has created an attractive entry point for investors, with the potential for a gradual rise over the next two weeks if the geopolitical backdrop improves. Similarly, Robert Minter of Aberdeen Investments noted that gold often falls temporarily during broad market selloffs because it is sold to meet margin calls, then stabilizes and resumes its advance. Max Layton of Citigroup said the bank remains confident that gold will trade higher in a year than it does today.
Gold’s nearly 150% rally since the start of 2023 was initially driven by central bank buying after the freezing of Russia’s foreign exchange reserves highlighted the risks of overreliance on dollar assets. Hedge funds and retail investors later joined the rally, accelerating gains.
A central theme behind the bull run has been the so-called “debasement trade.” The theory is that heavily indebted governments such as the United States, Japan, and France may ultimately rely on inflation and weaker currencies to manage post-pandemic debt loads. In such an environment, gold stands to benefit as a store of value. That longer-term thesis has not disappeared. But for now, it has been overshadowed by the immediate impact of war, a stronger dollar, and rising yields. As World Gold Council strategist John Reade observed, the structural drivers behind gold remain in place, but they are no longer the market’s top priority at the moment.
Elsewhere in the precious metals complex, silver fell 1.6% to $68.65, while platinum and palladium also moved lower. Holdings in the SPDR Gold Trust, the world’s largest gold-backed ETF, were little changed on Friday at 1,052.71 metric tons. That stability suggests that while investors have turned more cautious, there has not yet been a wholesale collapse in institutional interest.
Gold is showing signs of stabilization after a severe correction, supported by bargain buying and a modest pullback in the US dollar. Still, the market remains vulnerable to geopolitical swings, US monetary policy, bond yields, and central bank behavior.
For now, bullion appears to be caught between short-term headwinds and long-term support. If tensions in the Middle East begin to ease and the dollar loses momentum, gold could extend its recovery. But if the war intensifies, energy prices rise further, or central banks slow their buying more sharply than expected, the metal may face another difficult stretch before its longer-term bullish story reasserts itself.