Declining prices attract buyers, though higher rates and oil costs limit gold’s short-term upside.
Dubai: Gold’s recent decline has surprised many, especially given elevated geopolitical risks. Rather than rallying, prices have fallen, with global macroeconomic factors largely dictating the near-term trend.
Chris Weston, Head of Research at Pepperstone, said the current market setup is difficult to predict over any fixed horizon, largely because the driving factors remain fluid.
“This is a great question, but also an incredibly challenging one to answer,” he noted, highlighting the Strait of Hormuz as the key variable shaping outcomes. He added that a prolonged disruption seems unlikely, with pressure mounting rapidly toward either diplomacy or escalation.
That uncertainty is directly influencing gold’s trading behavior.
Oil and rates take the lead
Gold is currently acting more like a rate-sensitive asset than a traditional safe haven. Rising energy prices have lifted inflation expectations, driving up bond yields and strengthening the US dollar.
Signs that “,”Iran”,”country”] allows more vessels to transit the Strait of Hormuz bond yields might decline on both nominal and real terms, and the US dollar purchases amid price window**
Chris Weston, Head of Research at Pepperstone, said: “In the near term, gold is trading more like an anti-bond,” highlighting that higher real yields are reasserting their usual inverse relationship with bullion.
If oil prices continue to climb, the pressure on gold could persist. Elevated inflation expectations would likely keep yields high and support the dollar, creating a challenging environment for gold prices to recover.
“If the current situation were to persist for some time, one would expect energy prices to continue rising. In that environment, gold would likely face renewed pressure and move lower,” Weston added.
The connection between oil and gold has become central, with crude now serving as the primary driver of short-term price movements.
What could push prices higher
A shift in oil prices could quickly change gold’s trajectory. Chris Weston noted that any signs of easing tensions or improved vessel flow through the Strait of Hormuz
Liquidity is outweighing the safe-haven trade
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said the recent gold correction is being driven more by positioning and liquidity than by any breakdown in its long-term fundamentals.
“At this stage, I would interpret it mainly as a liquidation-driven correction rather than a definitive trend reversal,” he explained.
Gold had posted very strong gains over the past year, so when the war triggered a broader macro repricing across equities, bonds, FX, and commodities, gold became one of the easier assets to sell to meet margin calls, reduce leverage, or raise cash. Hansen emphasized that the current weakness does not signal a loss of safe-haven status; rather, it reflects a temporary liquidity-driven event.
Gold has now returned to its 200-day moving average for the first time in years, marking a test of long-term support rather than a structural downward shift.
He added that during periods of broad market stress, liquidity often takes precedence over the safe-haven narrative.
“Gold is still a defensive asset over time, but during periods of broad market stress it is often sold simply because it is liquid,” he said.
This dynamic has unfolded in recent weeks, as investors trimmed positions to raise cash, meet margin calls, and reduce exposure.
Buyers return as prices fall
While global investors remain cautious, the price pullback has prompted a different response in the UAE, where consumers are actively stepping in to purchase gold.
Retailers are reporting a noticeable pickup in demand, especially from buyers bringing forward planned purchases.
“Yes, we are seeing customers who had planned purchases for later in the year choosing to bring them forward,” said John Paul Alukkas, CEO of Joyalukkas Jewellery.
He added that customers are approaching purchases with greater clarity, often arriving with shortlisted designs rather than making impulse decisions.
“The UAE market is unique — it is home to some of the most knowledgeable and discerning jewellery buyers in the world. When customers feel that the market has found a stable and fair equilibrium, they engage with confidence,” Alukkas said.
He also noted, “The price of gold is still much lower compared to the beginning of this month — and hence shoppers won’t be put off by today’s increases.”
At the same time, exchange and upgrade activity has increased alongside fresh purchases, reflecting a more active market.
“Customers are using this window to refresh their collections,” said John Paul Alukkas, noting that both emotional and practical considerations are influencing buying decisions.
Shamlal Ahamed, Managing Director of International Operations at Malabar Gold & Diamonds, added that the recent correction has boosted sentiment.
“The recent sharp decline in gold prices has had a distinctly positive impact on consumer sentiment, prompting a surge in buying activity,” he said.
He added that demand is coming from both jewellery buyers and investors purchasing coins and bars, with residents leading the trend.
Volatility set to remain high
Short-term direction remains uncertain, with elevated volatility and sharp price swings likely to continue.
Shamlal Ahamed, MD of International Operations at Malabar Gold & Diamonds, noted that the recent sharp decline in gold prices has positively impacted consumer sentiment, triggering a surge in buying activity. Customers increasingly view the price correction as a timely investment opportunity, driving higher footfall and overall sales.
Chris Weston also highlighted that options markets are pricing in some of the highest volatility levels seen in recent years, indicating wide trading ranges even without major new developments.
“The most important factor in gold right now is the elevated level of both realised and implied volatility.”
That environment calls for caution, particularly for investors attempting to time the market.
A market pulled in two directions
The current phase reflects a market caught between competing forces. On one side, geopolitical risks and long-term fundamentals continue to support gold. On the other, higher yields, a stronger US dollar, and inflation concerns are limiting near-term upside.
Ole Hansen noted that the underlying drivers that supported gold over the past two years remain intact, even if they are not currently leading market movements.
“The fundamentals have not disappeared, but the near-term hierarchy of drivers has changed.”
Since the war began more than three weeks ago, gold has largely tracked stocks while moving inversely to crude. Elevated energy prices have heightened inflation risks, prompting investors to anticipate that the Federal Reserve and other central banks may hold rates steady or raise them — a headwind for non-yielding bullion.
For consumers, this creates a window of opportunity: prices remain below recent peaks, demand is rising, and sentiment is stabilising. The path forward for investors will depend less on headlines and more on how oil, interest rates, and liquidity evolve in the coming weeks.
