Why is the price of gold falling? | | Financial Markets News

In difficult global times, the price of gold rises as investors look to the yellow metal as a safe haven from inflation.

But that was not the case this time.

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Gold has been under pressure since the United States and Israel attacked Iran in late February, triggering a months-long war. Prices have fallen from $5,303 per troy ounce (31.1g) on ​​January 28 to $4,235 on Friday.

This is because high inflation has caused concern that central banks will not cut interest rates. They can also ride them to climb trees.

The root of the inflation spike, in particular, is the Strait of Hormuz.

To retaliate against the US and Israel, Iran has been blocking traffic on the waterway since the beginning of the war, blocking a major oil and gas pipeline. Electricity prices have skyrocketed, causing inflation to rise.

In the US, inflation is at risk the highest in three years, at 4.2 percent. At the same time, the labor market in the country has been unstable, causing interest rates to drop quickly.

While gold acts as an inflation hedge for investors, rising interest rates weigh heavily on the metal.

Gold, after all, is considered a “non-yielding” asset, as it does not produce more than its face value. In other words, in order to profit from gold, the price of the metal must increase.

“Gold is as close to real money as it can be in terms of wealth,” Justin Cardwell, head of options analyst at financial website OptionSpreaders.com, told Al Jazeera. “It doesn’t collect dividends, and it doesn’t pay dividends until prices go up. People buy gold because of its appreciation (its value).”

This puts interest in direct competition with gold.

“Gold loses its luster as a currency when interest rates are high and people move into the dollar,” Cardwell added.

The Iran conflict has been good for the dollar, and since gold is bought in dollars, the two move differently.

“When the dollar strengthens, gold feels the pressure; when the dollar weakens, gold starts to rise. Right now, the dollar is strong, and gold is feeling it,” Collin Plume, CEO of Noble Gold Investments, told Al Jazeera in an email.

But Plume added that the future is uncertain at the cost of both.

“The big question we’re facing throughout this year — and probably the next few — is who’s coming in,” he said.

“A few months ago, what followed was a reduction in prices, so prices were rising and goods were appreciating across the board. This has changed. Now we are facing a storm, including the real possibility of an increase in prices. Every economy is affected by this change, and gold is particularly affected by the cost of interest.”

Before the war against Iran, President Donald Trump asked the Federal Reserve, the US central bank, to lower interest rates.

But the CME FedWatch tool, which helps predict how the Fed will move interest rates, now says the chance of a rate hike by December is more than 50 percent.

This could affect the price of gold, according to Plume.

“Interest rates and inflation are like two sides of soybeans … and gold sits right in the middle,” Plume said. “What has happened in 2026 is that everything is happening at the same time – and right now, the front side is winning. This is why gold is facing a storm.”

On Friday, when news of a possible deal between the US and Iran broke, gold closed slightly lower than the previous day.

“The headlines of the possibility of an impending war would be good for gold because the assumption is that inflation will come down,” Cardwell said.

But that would still take several months.

“The way gold is now, it’s possible that this is a support zone. Even after the war ends, there are many other things that can mask what gold prices can do,” added Cardwell.