Gold plunges as surging dollar outweighs Middle East war premium

14:20

By: Dakir Madiha

Gold plunges as surging dollar outweighs Middle East war premium

Gold and silver recorded their steepest single session declines of 2026 on Tuesday as a surge in the U.S. dollar and rising Treasury yields outweighed safe haven demand driven by the escalating Middle East conflict.

Gold fell more than 4 percent during trading, briefly dropping below $5,000 per ounce before stabilizing near $5,137. Silver slid about 8 percent to roughly $83.70, erasing the geopolitical premium that had built up during the weekend.

The sharp correction came despite an intensifying geopolitical backdrop. Coordinated U.S. and Israeli strikes against Iran launched on February 28 killed Supreme Leader Ayatollah Ali Khamenei and triggered a wider regional escalation. The Strait of Hormuz, a passage that handles roughly 20 percent of global oil supply, was effectively closed, while Iran carried out missile attacks across several Gulf states and Hezbollah declared war from Lebanon.

Oil markets reacted strongly, with Brent crude rising to about $82 per barrel, up nearly 6 percent during the session.

The drop in precious metals was largely driven by currency and interest rate dynamics. The U.S. dollar index climbed about 0.7 percent on Tuesday to 99.21, extending a five day gain of roughly 1.7 percent and reaching its highest level in five weeks.

Independent analyst Ross Norman said the strengthening dollar and rising Treasury yields created strong headwinds for precious metals. A stronger dollar makes commodities priced in the U.S. currency more expensive for international buyers, while higher bond yields reduce the appeal of non yielding assets such as gold.

The surge in oil prices also intensified inflation concerns, leading investors to reassess expectations for U.S. monetary policy. Money markets now anticipate only about 44 basis points of interest rate cuts from the Federal Reserve by the end of the year, according to Bloomberg.

The yield on the U.S. 10 year Treasury climbed to about 4.059 percent, further weakening gold’s attractiveness relative to income producing assets.

Fawad Razaqzada, an analyst at City Index, said gold typically underperforms when expectations for interest rate cuts are pushed further into the future, which appears to be the dynamic currently shaping markets.

Broader market turbulence also amplified the selloff. U.S. equities dropped sharply, with the Dow Jones Industrial Average falling 2.5 percent, the Nasdaq Composite declining 2.3 percent and the S&P 500 losing 2.2 percent.

As stocks fell, leveraged investors were forced to liquidate precious metal positions to meet margin calls, accelerating the decline in gold and silver prices.

Despite the sharp drop, many long term investors remain optimistic about the outlook for gold. BNP Paribas raised its average gold price forecast for 2026 by 27 percent to $5,620 per ounce and expects a potential peak above $6,250.

J.P. Morgan said the conflict in the Middle East could still create upward pressure on gold and aluminum prices. BMI, part of Fitch Solutions, estimated that gold could rebound by as much as $450 from Tuesday’s lows if the geopolitical crisis persists.

Technical indicators also suggest the broader bullish trend remains intact. Gold’s 200 day moving average stands near $3,987, well below current levels even after the sharp daily correction.