Gold declined further on Friday, marking an eighth consecutive day of losses and sealing what is shaping up to be the metal’s worst weekly performance in more than 40 years. The prolonged downturn has raised fresh questions about gold’s traditional role as a safe-haven asset, particularly amid escalating geopolitical tensions in the Middle East.
Spot gold dropped 3.4 per cent to settle at $4,494.44 per ounce, while gold futures fell 2.4 percent to $4,496.16 per ounce. For the week, spot prices plunged 10.4 per cent, the heaviest weekly fall since March 1983, underscoring the intensity of the current selloff.
Historically, gold has served as a refuge for investors during periods of geopolitical instability and economic uncertainty. However, the ongoing conflict in the Middle East has failed to trigger the usual flight to bullion. Instead, investors have increasingly turned to the U.S. dollar, which has strengthened significantly since the onset of hostilities, diminishing gold’s appeal.
Market analysts attribute this shift to a combination of macroeconomic and monetary policy factors. While gold initially traded within a narrow range following the outbreak of conflict, prices broke decisively lower on Thursday after several major central banks signaled concern over rising inflationary pressures linked to surging energy costs. These signals have dampened expectations for near-term interest rate cuts, a development that traditionally weighs on non-yielding assets such as gold.
The increase in oil prices, driven largely by strikes on critical energy infrastructure in the Middle East, has intensified inflation fears globally. Oil benchmarks climbed to near four-year highs during the week, prompting policymakers to adopt a more cautious stance. The Reserve Bank of Australia responded by raising interest rates, while other major central banks, including those in the United States, Europe, Switzerland, and Japan, opted to hold rates steady while warning that easing may not be imminent.
Higher interest rates and elevated bond yields increase the opportunity cost of holding gold, which does not generate income. At the same time, a stronger dollar makes gold more expensive for holders of other currencies, further suppressing demand.
Despite the downturn, some market observers caution against writing off gold’s long-term prospects. Russ Mould, investment director at AJ Bell, noted that while gold’s recent performance may have dented its reputation as a reliable hedge, historical precedent indicates that such setbacks are not uncommon during extended bull cycles.
“Gold’s status as a haven may now be tarnished in the eyes of some,” Mould said, pointing to the unusual scenario in which the metal is falling even as geopolitical tensions intensify. However, he emphasized that previous bull runs, such as those between 1971 and 1980, and 2001 and 2010, were punctuated by significant corrections that did not ultimately derail long-term gains.
Mould also highlighted the role of interest rates in shaping gold’s outlook. A prolonged period of higher rates, or even the prospect of additional hikes, increases the implicit cost of holding gold, estimated at around 3.75 per cent due to foregone interest on cash. This dynamic, he noted, may continue to weigh on prices in the near term.
Nonetheless, long-term investors may remain undeterred. “Gold has been here before,” Mould added, pointing out that while short-term sentiment may be negative, structural drivers such as geopolitical uncertainty, currency volatility, and inflation risks could eventually reassert support for the yellow metal.
