Gold plummeted as much as 6% on Thursday, with the precious metal acting like anything but a safe-haven asset as the Middle East conflict escalates.
Investors went risk-off as the prospects of higher inflation lowered the chances investors are placing on Fed rate cuts.
Gold futures (GC=F) fell to $4,500 per ounce, while the broader metals complex was also hammered, with silver (SI=F) and copper (HG=F) dropping 13% and 5%, respectively. Even digital gold was battered with bitcoin (BTC-USD) dropping below $70,000.
Strategists note that while geopolitical risk in the Middle East would normally support gold prices, several offsetting forces are at play.
Surging oil prices have pushed up inflation expectations. This has raised concerns that the Federal Reserve and other central banks may keep rates higher for longer. As a result, yields on long-dated bonds have risen, making non-yielding assets like gold and other metals less attractive.
The US dollar (DX=F) has also strengthened 3% over the past month, adding further pressure on dollar-denominated assets. Since the outbreak of the Middle East war on February 28, gold has fallen roughly 13%.
“The recent break below key technical levels has triggered momentum-driven selling," said Ole Hansen, head of commodity strategy at Saxo Bank, as investors cut profitable positions to boost their liquidity.
"In short, gold’s failure to break higher despite geopolitical stress reflects a temporary dominance of macro and technical headwinds...over its traditional safe-haven appeal," he added.
Gold is up roughly 4% year-to-date, after surging a historic 65% last year fueled by central bank purchases, ETF inflows, and strong demand from Asia.
Silver, a more speculative asset, has declined further since its late January sell-off, trading near a December low of $68 per ounce on Thursday.
“Concerns that higher energy costs will weigh on global activity add another layer of pressure, while silver’s higher volatility and leverage to speculative positioning amplify downside risks during corrections,” Hansen added.
Digital assets also took a beating following signs of relative resilience since the start of the war.
On Thursday, bitcoin fell 3% after reaching a February high earlier this week. Ether (ETH-USD) also declined 4%, trading around $2,130.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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