Gold appeared firmly on track for a strong start to 2026. In January, the precious metal scaled record highs, buoyed by expectations of stable inflation, the prospect of interest rate cuts by the US Federal Reserve and a relatively calm global economic environment. Investors increasingly leaned on gold as a preferred asset in uncertain times, viewing it as a reliable hedge against geopolitical risks and sharp currency movements.
As tensions between the US–Israel bloc and Iran escalated into a wider conflict in West Asia, gold failed to live up to its traditional safe‑haven reputation. Instead of rallying, prices weakened after the conflict intensified, surprising many market participants who expected heightened geopolitical risks to drive renewed inflows into the metal.
Notably, Gold prices have witnessed a sharp correction from their record highs. Spot gold touched an all‑time high of $5,595.46 per ounce on January 29, but is currently trading around $4,633.57, marking a drop of nearly 17.2 per cent from the peak. The fall has been even more pronounced in the domestic market. MCX gold futures had hit an intraday record high of Rs 1,99,699 on January 29, compared with today’s low of Rs 1,49,733, translating into a steep decline of about 25 per cent from the lifetime high.
What has weighed on gold?
A key factor dampening gold’s performance has been the sharp rise in crude oil prices triggered by the West Asia conflict. Brent crude witnessed a steep rally, reigniting fears of higher inflation across global economies. This shift has forced markets to reassess their expectations around interest rates, particularly in the US.
Monday saw oil prices trade higher in early deals, supported by fresh commentary by US President Donald Trump on West Asia tension. Crude oil was up nearly 7 per cent at USD 102 a barrel.
On March 9, Brent crude surged over 27 per cent to trade at a multi-year high of USD 119 a barrel amid escalating Middle East tensions. The prices later dropped significantly after the announcement of coordinated oil reserve release by major G7 economies. The oil price, although at a multi-year high, was still lower than its all-time high of USD 147 per barrel seen in July, 2008. The recent hike was also lower than USD 130 per barrel price that was hit in 2022 during the Russia-Ukraine crisis.
Rising inflation concerns have pushed US Treasury yields higher, increasing the opportunity cost of holding gold. Unlike bonds, gold does not offer any interest or dividend income. As yields rise, investors often prefer interest‑bearing assets, making gold relatively less attractive. The strengthening of the US dollar on the back of higher yields has added further pressure, as a firmer dollar typically weighs on dollar‑denominated commodities like gold.
This shift has reduced a key source of structural demand that had supported gold prices over the past few years. With central banks turning more cautious and financial markets re‑pricing inflation and interest‑rate risks, gold has struggled to regain momentum despite an environment marked by geopolitical uncertainty.
For now, the metal finds itself caught between competing forces, geopolitical risk on one side and higher yields, a stronger dollar and shifting central‑bank priorities on the other.
