Gold's underlying allure has held up in the face of fresh conflict in the Middle East, traders and analysts said, even as some investors have retreated into the dollar as their immediate safe haven.
The dollar's rally - which lifted the dollar index by 0.5% on Tuesday to a level not seen in more than three months - came as market participants reassessed the likelihood of interest-rate cuts by central banks around the world, notably in oil-importing nations facing higher energy costs. The currency push weighed on bullion.
Spot gold fell sharply on Tuesday, sliding 4% to $5,136 and reaching its lowest level since February 20. Market veterans said the speed of the move reflected a broad unwinding of risk positions rather than a change to the drivers that have supported the metal this year.
"This is one of those days when, if you've got profits, you have just take the risk off the board wherever you can," said Robert Gottlieb, a former head of precious metals at Koch Supply and Trading. He added: "But have the fundamentals changed? The answer is no. We still have persistent geopolitical and economic uncertainty."
Traders pointed to the extreme volatility seen at the end of January as a reason for heightened caution. On January 29, gold hit a record high of $5,594.82 and then tumbled over the following two sessions. That episode has made some market participants wary of jumping in too quickly on drops.
"People learned on January 30 to be careful - to decide whether it's a dip or a falling knife, and not get caught," Gottlieb said.
Still, several market participants said the recent retreat should attract demand. BNP Paribas this week increased its average gold price forecast for 2026 by 27% to $5,620, and the bank sees a potential peak above $6,250 by the end of 2026.
A precious metals trader, who declined to be named because he was not authorised to speak publicly, said that a move to the roughly $5,100 level would pull in buyers from Asia as safe-haven purchases continue. He noted the magnitude of this week's selloff was amplified by heavy buying the previous Friday - ahead of the start on Saturday of the U.S.-Israeli air war against Iran - which had pushed prices up to a Monday close of $5,260, the highest since January 30, before profit-taking began.
Pressure on gold was compounded by broad sellsides elsewhere in financial markets. Government bonds and equities both fell; the S&P 500 was last down 1.5%. Analysts said sharp declines in equities can force holders of safe-haven assets, including bullion, to liquidate positions to raise cash for broker deposits or margin needs.
"Traders who have been long gold since any time before New Year could use those gains to take profit in the face of margin calls in equities," said Adrian Ash, head of research at online marketplace BullionVault.
Gold's strong performance last year - a 64% surge - was in part driven by investor inflows into the metal as worries mounted over the S&P 500's strong gains in 2025. That backdrop has left some investors primed to rotate back into bullion if conditions deteriorate further.
Adrian Ash also noted that, historically, gold tends to rise over a 12-month horizon when stocks have fallen year-on-year. He said that over any five-year period since 1970, in instances where the S&P 500 price index declined over those five years, gold has always been higher than it was five years earlier.
For now, the market is balancing near-term technical selling and margin-driven liquidations against the longer-running narratives that have supported gold: geopolitical risks, inflation hedge demand, and uneven prospects for central bank easing in parts of the world hit by rising energy prices.
Key points
- Gold remains attractive to investors because of ongoing geopolitical tensions in the Middle East and broader economic uncertainty, despite short-term price weakness.
- A stronger dollar and reassessed prospects for global central bank rate cuts - especially in oil-importing countries facing higher energy costs - have pushed gold down in the near term.
- Broader market stress, including falls in government bonds and equities, can trigger liquidation of bullion to raise cash, adding to downward pressure on gold prices.
Risks and uncertainties
- Dollar strength - A stronger dollar reduces gold's appeal for holders of other currencies and can depress bullion prices - affecting the precious metals market and forex-sensitive sectors.
- Equity selloffs and margin calls - Sharp declines in stocks can force investors to sell gold to meet broker deposits and margin requirements, pressuring both metal and equity markets.
- Unclear market sentiment following extreme volatility - The market's cautious reaction after the late-January spike makes it harder to determine whether sharp dips are buying opportunities or the start of deeper declines, affecting trading activity in precious metals and related financial products.
Note: This report reflects market conditions and analyst commentary as described by traders and institutions quoted in the market coverage. Forecasts and historical relationships cited are those provided by market participants and institutions referenced in market commentary.