On Tuesday, 19 May, gold prices plunged over 2%, hitting its lowest level in seven weeks. Since the beginning of the U.S.-Iran conflict, the precious metal has lost roughly 15% of its value. While gold traditionally thrives on geopolitical uncertainty, it has faced steady declines during this crisis.
This downturn is driven by several factors. First, traders are shifting into yield-paying assets over non-yielding gold. With 10-year Treasury yields lingering near their highest levels in a year, the metal has lost much of its relative appeal.
The further pressure stems from the stronger U.S. dollar. Because gold is priced in greenbacks, a strengthening dollar makes the commodity more expensive for foreign buyers, dampening global demand.
Finally, surging oil prices — fueled by the closure of the Strait of Hormuz — have reignited inflationary concerns, forcing investors to price in a more aggressive stance from the Federal Reserve.
However, on Wednesday, 20 May, gold staged a temporary recovery, rising back to over $4,530. This rebound was attributed to easing market anxiety amid renewed hopes for a resolution to the conflict, which has disrupted markets since late February. According to the U.S. President Donald Trump, the negotiations are in the final phases. On Thursday, May 21, Iran confirmed that it is reviewing the latest proposal from the Trump’s administration to end the war. Trump, in turn, stated that he is ready to wait a few more days to get “the right answers”, though he warned that if Iran rejects the proposed deal, renewed attacks could follow.
While a temporary ceasefire — now lasting six weeks — pushed the active phase of negotiations, little concrete progress had been witnessed until now. The main roadblocks to a peace deal continue to be the status of Iran’s nuclear program and free transit through the Strait of Hormuz.
The relief rally proved short-lived. Following the release of the Federal Reserve’s latest meeting minutes, gold experienced another decline. The documents revealed that most officials would consider raising interest rates in case the U.S.-Iran conflict keeps fueling the inflation. Markets further question whether rate hikes could be seen by the end of 2026. However, the improved outlook regarding a potential end to the war helped limit further losses.
Therefore, gold’s path back to sustained upward momentum appears tied to a resolution of the ongoing conflict, which remains the key driver of the surge in oil prices and broader inflationary pressures.
This article was written in cooperation with TRADINGVIEW