War usually sends Gold higher – Not this time

Gold's price has declined as the US-Iran war unfolds with little sign of ending soon. In perhaps the most uncertain times in recent years, Gold isn’t moving the way it is supposed to. What is going on?

Gold prices move based on complex macroeconomic factors rather than a single driver. The previous metal tends to rise during geopolitical instability, wars, or economic crises, as investors seek safety. However, a significant fundamental divergence has emerged this week, where the commodity has not reacted positively to the dramatic war in the Middle East.

The key lies in inflation concerns

The US-Israel attack on Iran and Tehran’s response rattled global financial markets and triggered a massive wave of the risk-aversion trade. Gold prices, however, have struggled to gain any meaningful traction and even declined by a significant 4.4% on Tuesday.

Why did Gold lose its shine amid the current crisis? The quick answer is that Gold isn’t the only safe-haven out there and investors preferred another one: The US Dollar.

The sharp rise in Oil prices led to inflation concerns, which dimmed prospects for immediate interest-rate cuts by the Fed. Fewer rate cuts are a positive for the US Dollar. And investors seem to see there a more lucrative trade than in Gold.

Traders pare bets for more rate cuts by the Fed

Iran’s Revolutionary Guards announced the closure of the Strait of Hormuz, a vital shipping route for Oil and Gas, raising the risk of supply disruption and an energy shock. Higher energy prices would filter through to consumer prices. This would solidify the case for many central banks, including the US Federal Reserve, to reassess their monetary policy stance and hold interest rates steady for now.

Traders have been scaling back their expectations for three rate cuts by the US central bank in 2026 amid renewed inflation concerns. The outlook remains supportive of elevated US Treasury bond yields and pushed the USD Index, which tracks the Greenback against a basket of currencies, to its highest level since November 2025 on Tuesday. 

A firmer USD and reduced bets for more aggressive easing by the Fed have been acting as a headwind for Gold prices, though geopolitical risks suggest the possibility of an extension of the bull-bear tug-of-war.

Technical Analysis: The uptrend is still there

Gold holds inside an ascending parallel channel, hovering just above the lower boundary near $5,030, which keeps the broader pattern bullish despite the recent pullback from the $5,380-$5,410 area. Moreover, Gold prices still trade above the rising 200-period Simple Moving Average (SMA) on the 4-hour chart, around $5,030, keeping the medium-term uptrend intact.