While geopolitical tensions provide support for gold prices, recent market behavior suggests they are insufficient, by themselves, to fuel a lasting upward trend.
Experts said gold is likely to fall further as energy prices rise, thereby feeding into higher inflation over the course of time.
Macro factors, particularly real yields, the US dollar and interest rate expectations, remain the key constraints on further upside, according to ING Economics.
Higher energy prices, a strengthening dollar, and changes in interest rate expectations have diminished the demand for safe-haven assets.
Gold prices on COMEX dipped more than 8% on Monday to hit their lowest level since November 25 of last year. Prices dipped as low as $4,128.70 per ounce.
The contract had recovered some of the losses and was around $4,301 per ounce last.
Macro forces outweigh
Even with the Iran conflict escalating, gold prices have declined by 25% since its peak on January 29.
This drop underscores the continuing dominance of macro factors, such as interest rates, the US dollar’s strength, and cross-asset positioning, over short-term price movements.
The pattern mirrors previous shock events, where the immediate need for liquidity often supersedes the demand for gold as a safe haven during the initial phases, according to ING Economics.
“More broadly, geopolitics alone rarely drives gold prices in a sustained way; what matters is how such shocks feed through to inflation, monetary policy and the dollar,” Ewa Manthey, commodities strategist at ING Economics, said in a report.
“In the near term, a stronger US dollar and gold’s high liquidity can make it a source of funds during stress episodes.”
Energy prices and inflation
Elevated energy prices, fueled by rising geopolitical tensions, pose a risk of persistent high inflation, which complicates prospects for monetary easing.
A prolonged period of high interest rates would maintain elevated real yields, creating a challenging environment for gold.
While the Federal Reserve held rates steady this week, with Chair Powell emphasising the need for clearer evidence of inflation progress before further easing, ING’s economist still anticipates two 25 basis point rate cuts later in the year, specifically in September and December.
“That said, a stagflationary backdrop – slower growth alongside persistent inflation – would remain supportive for gold over the longer term,” Manthey said.
The US central bank had recently highlighted growing inflation concerns and stated that it would rule out any further monetary stimulus if evidence suggests inflation is unlikely to meet its medium-term target.
“The gold price is therefore likely to continue to decline as energy prices rise further, threatening to push longer-term inflation expectations higher,” Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, said.
Central bank buying slows
Gold demand continues to be supported by central banks, although the rate of buying has slowed down.
According to World Gold Council data, net purchases in January reached 5 tonnes, significantly lower than the 2025 monthly average of 27 tonnes, indicating a softer start to the year.
Despite this, the composition of flows suggests sustained structural interest. Purchases from Uzbekistan, for instance, outweighed sales from Russia.
Furthermore, the emergence of new buyers like Malaysia and the potential re-entry of the Bank of Korea point towards a gradual diversification of the gold demand base.
“That said, while official sector demand remains structurally supportive, reflecting an ongoing shift in reserve management away from the US dollar, it is unlikely to drive short‑term price moves,” ING’s Manthey said.
Near-term price movements are likely to be driven primarily by investment flows, although central banks may capitalize on price dips to strategically bolster their reserves, she added.
Middle East key gold purchaser
A significant factor is the Middle East, especially Dubai, which is a central hub for the gold trade.
“The war on its doorstep is likely to have an impact on local demand for gold,” Carsten Fritsch, commodity analyst at Commerzbank, said.
Middle Eastern private households acquired a substantial 270 tons of gold last year, purchasing it as jewellery, bars, and coins, according to data from the World Gold Council.
Global demand was met by this amount, which accounted for 10% of the total.
This figure surpassed the demand observed in both the US and Europe. A significant portion, over 70 tons, was attributable to Iran alone.
“This demand is now likely to be significantly lower due to the war,” Fritsch said.
Outlook still constructive
“We remain constructive on gold overall, though near-term risks have increased,” Manthey said.
Despite being up year-to-date, the gold market remains susceptible to episodes of profit-taking.
Nevertheless, significant dips are expected to draw in buyers, especially central banks and long-term investors.
“Ultimately, gold’s direction will depend less on geopolitical headlines alone and more on how those events shape inflation, monetary policy expectations and real interest rates,” Manthey added.
“For now, macro forces, not geopolitics alone, are driving gold prices.”
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