Gold prices suffered a sharp selloff on Friday as soaring U.S. Treasury yields, a stronger dollar, and mounting inflation fears linked to the escalating Iran conflict overwhelmed the metal’s traditional safe-haven appeal.
The decline comes as investors in global markets are increasingly treating the Middle East energy crisis not as a reason to buy gold, but as a trigger for prolonged inflation, tighter monetary policy, and higher real yields, conditions that historically pressure bullion prices.
Spot gold fell 2.2% to $4,546.45 per ounce by 1000 GMT, its lowest level since May 5, while U.S. gold futures for June delivery dropped 2.9% to $4,550.80. The precious metal is now down roughly 3.6% for the week, placing it on track for one of its steepest weekly declines in recent months.
The selloff came as benchmark 10-year U.S. Treasury yields climbed near one-year highs, sharply increasing the opportunity cost of holding non-yielding assets such as gold. At the same time, the U.S. dollar strengthened, making dollar-denominated bullion more expensive for overseas investors.
Analysts said the market reaction reflects growing fears that the ongoing war involving Iran and the disruption around the Strait of Hormuz are feeding directly into global inflation pressures.
StoneX analyst Rhona O’Connell said the combination of rising yields and a stronger dollar was being driven by heightened inflation concerns linked partly to Gulf hostilities and reinforced by this week’s U.S. inflation data.
“Yields and the dollar are higher on heightened inflationary concerns, stemming in part from the Gulf hostilities and backed up by the April PPI and CPI numbers released this week,” O’Connell said.
The inflationary backdrop has intensified dramatically as oil prices surge.
Brent crude climbed 7.8% this week to trade above $109 per barrel, while U.S. West Texas Intermediate crude approached $105, as fears persist that the Strait of Hormuz could remain partially blocked amid continuing tensions involving Iran.
The Strait of Hormuz is one of the world’s most critical energy chokepoints, carrying a substantial share of globally traded crude oil and liquefied natural gas. Disruptions there immediately ripple through fuel markets, transportation costs, and industrial supply chains worldwide. Higher energy prices are now feeding directly into inflation expectations because rising fuel costs typically cascade through manufacturing, logistics, aviation, shipping, and consumer goods pricing.
That dynamic is increasingly changing how investors interpret geopolitical risk. Historically, wars and geopolitical instability tended to boost gold because investors sought protection from uncertainty. But in the current environment, markets are more focused on the inflationary consequences of the conflict and the resulting impact on central bank policy.
If oil-driven inflation remains elevated, the Federal Reserve and other major central banks may be forced to keep interest rates higher for longer, reducing the attractiveness of gold relative to interest-bearing assets.
Recent inflation data in the United States already suggests businesses and consumers are beginning to experience stronger price pressures linked to the energy shock. Traders have now largely priced out expectations for U.S. interest rate cuts this year, according to CME FedWatch data, marking a major reversal from earlier market expectations that the Federal Reserve would begin easing policy in 2026.
The repricing has pushed Treasury yields sharply higher and strengthened the dollar, both traditionally negative forces for precious metals.
Gold also faced additional pressure from India, one of the world’s largest bullion markets. India recorded record discounts on gold this week following a sharp increase in import duties, weakening local demand, and adding another layer of stress to an already fragile market.
O’Connell said the combination of Gulf tensions and developments in India had worsened sentiment.
“Gold has been wary of the Gulf war for a good while now and the slew of news out of India this week with respect to import duties has exacerbated tensions in an already weak market,” she said.
Still, some analysts believe the long-term outlook for gold remains constructive even as short-term volatility intensifies.
Independent analyst Ross Norman said uncertainty surrounding geopolitical developments is making short-term market direction difficult to interpret.
“Longer term, the mood is constructive towards higher prices, but arguably in the short term gold is unreadable as uncertainty grips the newswires,” Norman said.
The wider precious metals complex also weakened sharply. Spot silver plunged 7.2% to $77.46 per ounce, platinum fell 2.9% to $1,996.34, while palladium declined 1.4% to $1,417.18. All three metals were heading toward significant weekly losses.
Meanwhile, oil markets continued climbing after Donald Trump said his patience with Iran was “running out,” intensifying fears that efforts to stabilize shipping around the Strait of Hormuz are failing. Trump made the remarks after talks with Xi Jinping, saying both leaders agreed Iran could not be allowed to obtain nuclear weapons and that the Strait of Hormuz must be reopened fully.
The comments reinforced fears that the current ceasefire remains fragile and that broader military escalation remains possible.
Vandana Hari, founder of oil market analysis provider Vanda Insights, said markets were increasingly focused on the possibility of prolonged deadlock around the strait.
“Market focus is back on the deadlock and a blockaded Strait of Hormuz, with a tail risk of renewed military escalation,” she said.
While some vessel traffic has resumed, shipping volumes remain far below normal levels.
Iran’s Revolutionary Guards said 30 vessels crossed the Strait of Hormuz between Wednesday evening and Thursday, compared with roughly 140 vessels daily before the conflict erupted. Shipping analytics firm Kpler said 10 ships transited the route in the past 24 hours, still well below historical averages.
PVM analyst Tamas Varga said the reopening trend was helping sentiment somewhat, though market psychology remains dominated by geopolitical uncertainty.
“An increasing number of vessels are filtering through the Strait,” Varga said, “although currently this has a more tangible impact on sentiment than on the actual oil balance.”
The broader market picture now suggests investors are increasingly worried that the Iran conflict could evolve into a prolonged inflationary shock rather than a short-lived geopolitical disruption.
That shift is reverberating across asset classes.
Oil prices are climbing because of supply fears. Bond yields are rising because investors expect stubborn inflation and tighter monetary policy. The dollar is strengthening as global capital seeks safety in U.S. assets. And gold, unusually, is falling because the inflationary consequences of the crisis are outweighing its traditional role as a haven asset.
The result is a market increasingly dominated by stagflation fears, where geopolitical instability pushes up energy prices and inflation simultaneously while also tightening financial conditions across the global economy.
