(Kitco News) - Even as it attempts to recover from significant overnight selling pressure, the gold market remains at the mercy of the U.S. dollar, which continues to be driven by chaos and uncertainty in the Middle East, according to some analysts.
U.S. President Donald Trump threatened on Saturday that Iran had 48 hours to reopen the Strait of Hormuz or the U.S. would begin targeting the nation’s power infrastructure.
That threat caused a nearly 9% drop in gold prices overnight; however, the precious metal has seen a significant recovery ahead of Monday’s North American open after Trump, in an all-caps social media post, said he was postponing his threat to destroy Iran’s main power plant as the U.S. holds productive conversations with Iran to end the war.
However, in another twist, the Iranian government, in its only social media post, denied that any conversations had taken place.
In a whiplash move, gold prices are up 5% since Trump’s morning post and have nearly recovered all of their overnight losses. Spot gold last traded at $4,462 an ounce, down less than 1% on the day.
Although gold has recovered from its overnight selloff, analysts said the market remains extremely volatile in the current environment.
Fawad Razaqzada, Market Analyst at FOREX.com, noted that the earlier selling pressure completely wiped out gold’s historic gains from December and January. But he added that there is hope the latest Trump TACO trade has marked a bottom.
“Before it managed to bounce back today, gold had declined in eight of the past nine sessions, with the only exception being a flat performance last Tuesday when prices were still holding above the $5000 level. Let’s see if today marks the turning point now,” he said. “Short-term momentum is clearly bullish on the intraday basis, while the higher time frame bias is bearish. For that reason, the preference is to take it from one level to the next, until the charts signal a decisive bullish reversal.”
Analysts note that the ongoing war with Iran remains a significant emergency-liquidity trade for the U.S. dollar, with any rise in uncertainty expected to further benefit the U.S. dollar and create headwinds for gold.
At the same time, global supply chain disruptions resulting from the war continue to drive energy prices higher, threatening to increase inflation pressures. This is forcing global central banks to reconsider any potential monetary easing plans and adopt a more neutral “wait-and-see” stance.
Analysts have said that this shift in global monetary policy supports higher interest rates, which will raise gold’s opportunity costs as a non-yielding asset.
Alex Kuptsikevich, Chief Market Analyst at FxPro, said that the longer the war with Iran lasts, the more gold could suffer.
He added that if Russia’s war with Ukraine provides any insight, it suggests the U.S. dollar has further room to rise.
“In February 2022, investors also expected the conflict in Eastern Europe to be short-lived. Their views then changed, and the US dollar rose by 15% over the next three months. Since the start of this war, the USD index has risen by just 2%. The potential for a rally in the US currency is still huge,” he said. “Gold is considered a safe-haven and a hedge against inflation, but recent geopolitics has increased inflation risks, pushing up the likelihood of rate hikes, not cuts, as before March. From another angle, Gold simply failed to pass the safe-haven test, falling victim to speculative trading. The rapid rise in the precious metal’s price in 2025 and early 2026 led to an overcrowded market, and now the conflict has burst the inflated bubble.”
While gold does face further challenges, many analysts remain optimistic that the precious metal’s long-term trend remains intact. Analysts note that although inflation pressures continue to rise, growing global sovereign debt will limit what central banks can do.
At the same time, some analysts have said that if central banks are forced to raise interest rates because of higher inflation, this could end up pushing the already fragile global economy into a recession.
“Hawkish policies would be a negative for gold, as a non-yielding asset, we typically see bullion face headwinds in a rising yield environment,” said Michael Brown, Senior Market Analyst at Pepperstone in a recent comment to Kitco News. “If we are on the verge of a CB mistake, though, then gold could perform relatively well longer term if participants seek to hedge downside growth risks.”
