Gold prices struggled to recover Tuesday, hovering near $4,590 an ounce after suffering their sharpest weekly decline in months, as the unresolved U.S.-Iran conflict continued reshaping global inflation expectations and driving investors to price in a possible Federal Reserve rate hike before year-end rather than the cuts markets once expected.

The reversal marks a dramatic shift for the precious-metals market.

Earlier this year, gold surged to record highs above $5,200 an ounce as investors anticipated multiple Federal Reserve rate cuts, weakening real yields, and escalating geopolitical instability. But the prolonged energy shock tied to the Iran conflict has effectively flipped that entire macroeconomic narrative.

According to CME Group’s FedWatch Tool, traders now assign roughly a 40% probability to a 25-basis-point Fed rate hike by December, with some institutional desks placing the implied odds even higher.

The result has been unusually painful for gold despite the war backdrop that would historically boost demand for safe-haven assets.

Spot gold has fallen roughly $685 an ounce since late February, dropping from around $5,275 on the eve of Operation Epic Fury to near $4,590 this week. Over the same period, Brent crude surged from roughly $72 per barrel to near $120 at peak panic levels before stabilizing above $110.

The two assets investors traditionally pair together during geopolitical crises — oil and gold — are now moving in opposite directions.

“A geopolitical shock that simultaneously creates a severe inflation shock changes the entire rate environment,” one senior metals strategist at a major Wall Street bank said Tuesday. “That’s what gold is fighting right now.”

The core problem for gold is interest rates.

Rising oil prices tied to the Strait of Hormuz disruption are feeding directly into inflation expectations, forcing markets to assume the Federal Reserve may need to tighten policy rather than ease it.

That shift has sent Treasury yields sharply higher.

The U.S. 30-year Treasury yield climbed this week to its highest level since 2007, while the benchmark 10-year Treasury reached its highest level since early 2025. Real yields — one of the most important drivers for gold prices — are rising because nominal rates are increasing faster than inflation expectations.

That dynamic directly pressures non-yielding assets like gold.

The inflation fears intensified after recent economic data showed a much hotter-than-expected Producer Price Index reading alongside stronger industrial production numbers, effectively destroying the “soft landing” narrative that had fueled much of gold’s earlier rally.

Wall Street banks are now recalibrating their outlooks.

J.P. Morgan, which had previously projected gold could reach $6,300 an ounce by year-end, recently lowered portions of its near-term outlook as higher energy prices altered Federal Reserve expectations.

Goldman Sachs continues forecasting gold eventually reaching roughly $5,400, largely due to sustained central-bank demand, but warned clients that prolonged Hormuz disruption creates meaningful downside pressure in the near term if interest rates continue climbing.

Other bullish long-term forecasts from Bank of America, Wells Fargo, and BNP Paribas were all issued before oil prices surged above $100 and before markets began pricing in renewed monetary tightening.

The policy environment has become the exact opposite of what historically drives strong gold rallies.

Throughout most of 2025, gold benefited from expectations of lower rates, a softer dollar, slowing growth, and reserve diversification away from the U.S. currency system. The Iran conflict has reversed much of that equation.

Markets are now pricing almost no meaningful Fed cuts next year, while the U.S. dollar has strengthened as investors increasingly view the American economy — now a major oil producer itself — as more insulated from the energy shock than Europe or parts of Asia.

One major pillar supporting gold, however, remains intact: central-bank buying.

Global central banks continue accumulating gold reserves at historically elevated levels as countries seek diversification away from the dollar-dominated financial system. Surveys conducted by major investment banks show a large majority of central banks still expect gold prices to remain above $5,000 over the next 12 months.

That demand is helping establish a floor under the market even as hedge funds and institutional investors reduce positions tied to falling rate-cut expectations.

The broader strategic case for gold also remains largely unchanged.

For many long-term investors, gold increasingly functions less as a short-term inflation hedge and more as insurance against rising sovereign debt burdens, persistent fiscal deficits, and long-term currency debasement risks across developed economies.

But the near-term setup remains difficult.

Technical analysts say gold’s recent breakdown below key momentum levels leaves the market vulnerable to additional downside pressure if rates continue climbing and oil prices remain elevated. Several trading desks now view the $4,500 level as a major support zone, with further declines potentially opening a path toward the low $4,300 range.

The clearest upside catalyst would likely be a meaningful diplomatic breakthrough between Washington and Tehran.

Reports continue circulating that negotiators remain close to a framework agreement that could reopen the Strait of Hormuz in exchange for sanctions relief and restrictions on Iranian uranium enrichment. Such a deal would likely reduce oil prices, ease inflation fears, lower Treasury yields, and revive expectations for eventual Fed easing — a combination that would immediately benefit gold.

Until then, markets remain trapped in the same macro trade dominating nearly every asset class tied to the conflict.

Oil higher. Yields higher. Dollar higher. Gold lower.

The metal that traditionally protects investors during war is now being overwhelmed by the inflation and interest-rate shock the war itself created.

— JBizNews Desk

© JBizNews.com. All rights reserved. This article is original reporting by JBizNews Desk. Unauthorized reproduction or redistribution is strictly prohibited.