By: Rania Gule, Senior Market Analyst at XS.com – MENA
Gold prices experienced a notable decline at the beginning of this week, dropping below the $5,100 per ounce level and trading near $5,075 during the Asian session on Monday, marking a daily decrease of nearly 1.5%. From my perspective, this decline cannot be understood in isolation from recent developments in energy markets, particularly the sharp rise in oil prices, which has reignited global inflation concerns—a factor that often reshapes expectations for U.S. monetary policy. Rising oil prices not only increase energy costs but also ripple across various sectors of the economy, prompting investors to reassess their expectations for the path of U.S. interest rates. This, in turn, has directly impacted short-term gold performance.
In my view, the relationship between gold and inflation is not always linear, as some might think. While gold is traditionally seen as an inflation hedge, market reactions in the short term are often driven by monetary policy channels. When inflation fears rise due to higher oil prices, markets tend to believe that the Federal Reserve may keep interest rates elevated for longer, which increases the attractiveness of yield-bearing assets compared to gold, which offers no yield. This explains the growing selling pressure on the precious metal as traders scaled back bets on near-term rate cuts, which led to higher U.S. Treasury yields, supported the U.S. dollar, and pressured gold prices.
From my perspective, markets are currently undergoing a repricing of U.S. monetary policy expectations. Many economists expect the Federal Reserve to hold interest rates steady in its upcoming meeting on March 17–18, with the first rate cut potentially delayed until mid-year, perhaps in June or July 2026. If this scenario persists, it implies a relatively constrained monetary environment for longer, limiting gold’s ability to post strong short-term gains. However, I see this pressure as potentially temporary, because markets often overreact initially to oil and inflation shocks before reassessing the broader economic picture.
Another significant factor in gold’s movement is the recent strength of the U.S. dollar. A stronger dollar increases the cost of gold for investors using other currencies, weighing on global demand. From my analysis, the dollar’s strength is closely tied to U.S. interest rate expectations. Therefore, any signals from the Federal Reserve toward easing monetary policy later this year could quickly restore balance to the gold market. In this context, upcoming U.S. inflation data, particularly the anticipated Consumer Price Index, will likely be one of the main market drivers in the coming days.
Despite these pressures, an important factor could limit gold’s losses: weakness in certain U.S. economic indicators, especially recent labor market data. The February nonfarm payroll report showed weaker-than-expected results, with net job gains of about 92,000 and the unemployment rate rising to 4.4%. In my view, these data could mark the beginning of a gradual shift in investors’ assessment of U.S. economic strength. If signs of slowdown continue to appear in the coming months, the Federal Reserve may be forced to adopt a more flexible stance, which could support gold again.
In addition to economic factors, geopolitical risks remain a key element in the gold equation. Rising tensions in the Middle East, particularly developments concerning U.S.-Iran relations, add another layer of uncertainty to global markets. From my perspective, gold remains one of the assets most sensitive to such developments, as investors tend to increase safe-haven holdings during geopolitical stress. Therefore, even amid current pressures related to interest rates and the dollar, any escalation in geopolitical risks could quickly limit gold’s losses and possibly drive it higher again.
Looking at the bigger picture, I believe the overall trend for gold is upward and still supported by several structural factors, including persistently high global debt levels, geopolitical volatility, and strong demand from central banks worldwide. These factors make any downward price correction a potential opportunity to rebuild medium- and long-term investment positions. In my assessment, a decline in gold to levels near $4,995–$5,000 could attract investors seeking a hedge against global economic and financial risks.
Based on all these considerations, I see gold’s movement in the coming period as dependent on a delicate balance of three main factors: global inflation trends, U.S. monetary policy expectations, and the level of geopolitical risk. In the short term, volatility around current levels may continue, with possible tests of support near $4,995–$5,000. However, in the medium term, I still believe gold retains good prospects to resume an upward trajectory if markets begin pricing in U.S. rate cuts in the second half of the year or if global risks intensify.
In conclusion, I see the recent decline in gold prices not as a fundamental shift in the long-term trend but rather as a normal corrective phase within a broader upward path. Historical financial trends show that gold often benefits in the end from periods of economic and political uncertainty, which leads me to believe that the precious metal may find strong support at current levels before attempting to regain its upward momentum in the near term.
Leave a Reply