Gold Price Under Pressure Amidst US-Iran Conflict and Rising Interest Rates

Gold prices have come under pressure again since the United States and Israel launched a war against Iran towards the end of February.

Typically, during global crises, investors invest in gold to protect themselves against inflation, causing its price to rise sharply. However, this time the situation is different.

Gold prices have been under pressure since the United States and Israel attacked Iran towards the end of February, initiating a months-long war. The price, which reached $5,303 per troy ounce (31.1 grams) on January 28, fell to $4,235 on Friday.

The reason for this is concerns that central banks are less likely to lower interest rates due to high inflation. They might even increase interest rates further to control price increases.

One of the main causes of rising inflation is the Strait of Hormuz. Since the war began against the United States and Israel, Iran has been blocking passage through this strait as a retaliatory measure. This has affected a major route for oil and gas transportation. In response, energy prices have risen sharply, leading to further inflation.

Inflation in the United States has reached 4.2 percent, the highest in three years. At the same time, the stable job market has weakened expectations of an immediate decrease in interest rates.

Although investors view gold as a hedge against inflation, high interest rates tend to put pressure on its price. After all, gold is considered a 'non-yielding' asset because it generates no additional income beyond its value. This means that to profit from gold, its price must increase.

Justin Cardwell, chief analyst at the financial website OptionsSpreaders.com, told Al Jazeera, 'In terms of assets, gold is the closest commodity to real currency. It does not pay dividends, and it yields no return unless its price increases. People buy gold hoping for its price appreciation.'

This makes interest rates a direct competitor to gold.

Cardwell added, 'If interest rates are high and people are attracted to the dollar, the importance of gold as an investment decreases.'

The conflict with Iran has strengthened the US dollar, and since gold prices are determined in dollars, these two generally move in opposite directions.

Colin Plume, CEO of Noble Gold Investments, says, 'When the dollar strengthens, gold comes under pressure; when the dollar weakens, gold generally rises. Currently, the dollar is strong, and gold is bearing its impact.'

However, according to Plume, the future of both is uncertain.

He said, 'The biggest question for the rest of this year and possibly the next few years is what happens now.'

'A few months ago, the answer to the question 'what happens now' was interest rate cuts. That's why prices were rising, and asset values were soaring everywhere. The situation has now changed. We are now facing challenges with the real possibility of interest rates increasing. That will affect all assets, and gold prices are particularly dependent on interest rates.'

Before the war against Iran began, US President Donald Trump had pressured the US Federal Reserve to significantly lower interest rates. However, some data indicate a more than 50 percent chance of interest rates rising by December. According to Plume, this is likely to affect gold prices.

He said, 'Interest rates and inflation are two opposing forces, and gold sits right in the middle of them. The characteristic of 2026 is that both are happening simultaneously. And, currently, the interest rate side appears stronger. Therefore, gold is facing adverse conditions.'

On Friday, after news of a potential deal between the US and Iran surfaced, gold prices saw a slight increase compared to the previous day before stabilizing.

Cardwell said, 'News that the war might be nearing an end is positive for gold, as it increases expectations of falling inflation.'

However, it may still take several months for that process to complete. 'Even if the war ends, there will still be many other factors keeping gold prices limited,' says Cardwell.