Gold plunges as surging dollar dominates safe haven demand

Thursday 05 March 2026 - 07:00

By: Dakir Madiha

Gold plunges as surging dollar dominates safe haven demand

Gold prices recorded their sharpest one day drop of 2026 on Tuesday, falling more than 4 percent as the US dollar strengthened amid escalating tensions linked to the conflict involving Iran. The move came just one day after gold had surged above $5,390 per ounce on heavy safe haven buying triggered by geopolitical fears.

Data from Trading Economics showed gold falling to $5,088.16 per ounce on March 3, a decline of 4.41 percent from the previous session. During intraday trading the metal dropped to around $5,042 before stabilizing. At the same time the US dollar index climbed above 99 for the first time since January 20, reaching roughly 99.07 to 99.10 as investors shifted toward dollar denominated assets.

Market analysts attributed the decline to the strong rally in the US currency and rising bond yields, which typically weigh on non yielding assets such as gold. The surge in the dollar was partly driven by energy market tensions after threats to close the Strait of Hormuz pushed Brent crude prices up by about 5.8 percent, increasing concerns about inflation.

Higher inflation expectations have led investors to push back forecasts for a Federal Reserve interest rate cut. Markets now widely expect the next rate reduction to occur around September. Rising Treasury yields combined with the stronger dollar created strong pressure on precious metals.

Bloomberg reported that the US dollar experienced its strongest two day rally in nearly a year as the conflict intensified. The outlet noted that even traditional safe haven assets, including gold and US Treasurys, declined while the dollar strengthened sharply. Independent analyst Ross Norman said the surge in the dollar and US Treasurys created significant headwinds for precious metals, particularly silver.

The selloff spread across the broader precious metals market. Silver fell between 8 and 9 percent during the session, while platinum dropped around 9 percent to roughly $2,108 per ounce. Palladium declined more than 6 percent to about $1,685 per ounce. CNBC reported that spot gold at one stage dropped more than 5 percent, while silver prices collapsed amid what it described as the unwinding of speculative trades in 2026.

Fawad Razaqzada of City Index said that while gold often acts as a hedge against inflation and economic uncertainty, it tends to weaken when expectations for interest rate cuts are delayed. That dynamic is currently shaping the market outlook. According to CME Group FedWatch data, investors see more than a 60 percent probability that the Federal Reserve will keep interest rates unchanged through June, with attention focused on the central bank’s March 18 meeting.

Despite the sharp decline, some analysts view the move as temporary. BMI, the research arm of Fitch Solutions, suggested that gold could rebound by about $450 from Tuesday’s lows if geopolitical tensions persist. Analysts argue that the dollar’s strength may reflect a short term rush for liquidity rather than a lasting shift in currency trends.

A Reuters survey of 60 foreign exchange strategists indicated that most still expect the US dollar to weaken later in the year. Even after Tuesday’s decline, gold prices remain roughly 20 percent higher since the start of 2026.