Gold plunges as much as 8.8% as Middle East war deepens inflation fears

[SINGAPORE] Gold more than wiped out this year’s gains, falling for a ninth day as the war in the Middle East added inflationary risk and raised expectations for higher interest rates. Silver tumbled more than 10 per cent.

Spot gold plunged as much as 8.8 per cent to near US$4,100 an ounce. Since the conflict began, surging energy prices have raised expectations for rate hikes by the US Federal Reserve and other central banks. This is a headwind for non-yielding gold, which has just posted its biggest weekly drop since 1983.

Gold’s choppy session mirrored the broader market, with crude fluctuating near the highest close since mid-2022 and equity markets also volatile. In the three weeks since the war began on Feb 28, bullion’s decline has been driven partly by forced selling as investors seek to cover losses elsewhere in their portfolios. The metal ended last year at US$4,319.37 an ounce.

“The magnitude of gold’s sell-off is not unprecedented, but the pace of the sell-off has been much quicker than on many historical occasions,” said Wayne Gordon, an investment adviser at the wealth-management unit of UBS Group.

Over the weekend, US President Donald Trump gave Iran a two-day deadline to reopen the Strait of Hormuz or have its power plants bombed. Iran countered that it would close the strategic waterway “completely” and target energy, information technology and desalination infrastructure if its power facilities come under attack. Trump’s ultimatum came at 7.44 pm New York time on Mar 21.

Bullion’s reaction “to the current macro-economic shock has a clear market precedent,” said David Wilson, director of commodities strategy at BNP Paribas “If you look at all three previous economic-shock cycles – in 2008, 2020 and 2022 – gold initially fell as markets reacted to news flow, with investors typically selling assets to hold the US dollar,” he said, adding that all three periods were followed by a sustained rally.

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Bullion’s 14-day relative-strength index – a gauge of momentum – extended a fall below 30, a level that some traders see as indicating it’s oversold. Meanwhile, hedge funds and other large speculators increased their net-long position for gold to the highest in seven weeks as of Mar 17, weekly US government data published on Mar 20 showed.

Spot gold fell 5.9 per cent to US$4,225.81 an ounce at 3.49 pm in Singapore. Silver slid 6.5 per cent to US$63.51. Platinum and palladium also fell. The Bloomberg US dollar Spot Index, a gauge of the US currency, rose 0.2 per cent. BLOOMBERG