Global financial markets are navigating unprecedented turbulence, yet gold, the traditional safe-haven asset, is experiencing volatile swings amid geopolitical tensions. On Thursday, March 12, spot gold fell sharply by 1.88%, settling near $5,079.25 per ounce, with futures prices also declining, reflecting intense short-term market forces. Over a longer horizon, however, gold has surged from its early-year lows to record highs, posting remarkable gains. This seemingly contradictory performance underscores the current complex macroeconomic and geopolitical landscape. In early Asian trading on Friday, March 13, spot gold traded narrowly around $5,096 per ounce.
A strong U.S. dollar and delayed expectations for interest rate cuts are exerting clear downward pressure on gold in the near term. Thursday's sharp decline was largely driven by the dollar index strengthening for the third consecutive session. As a primary global safe-haven currency, a stronger dollar raises the cost of dollar-denominated gold for holders of other currencies, dampening demand among non-U.S. investors.
At the same time, U.S. Treasury yields climbed significantly, with the two-year yield hitting a multi-month high, indicating a market reassessment of inflation expectations. Forecasts for Federal Reserve rate cuts have been pushed further out, with traders now pricing in only about 19 basis points of easing by year-end, down from earlier optimistic assumptions of 50 basis points. This high-rate environment naturally weighs on non-yielding assets like gold, as capital flows toward higher-yielding bonds or cash equivalents.
Nevertheless, some institutional strategists note that while dollar strength and rising yields dominate short-term sentiment, they have not erased gold's structural supports. Safe-haven demand linked to escalating Middle East conflicts continues to provide underlying support, though it is currently overshadowed by the stronger dollar.
The most critical driver of recent gold price volatility is the sharp deterioration of the Middle East situation. Iran's new supreme leader, Mujtaba Khamenei, has publicly vowed to blockade the Strait of Hormuz and has launched multiple attacks on U.S. military targets in the region, including missile and drone strikes on the U.S. Fifth Fleet base in Bahrain, along with claims of destroying 70% of U.S. bases and command centers in the area. These actions have led to incidents such as two tankers catching fire in Iraqi waters and a U.S. refueling aircraft crash, driving oil prices up nearly 10% in a single day and pushing them close to the $100 per barrel mark.
The Strait of Hormuz is a vital passage for approximately 20% of global oil and significant natural gas shipments. A prolonged blockade could trigger the largest energy supply crisis in history. Although the International Energy Agency has urgently released 400 million barrels of strategic reserves, this would only temporarily cover about 20 days of shortfall, with the release process taking weeks to months. Soaring energy prices would quickly raise global production and transportation costs, fueling inflation expectations. Gold, as a classic inflation hedge, should theoretically gain strong support amid such "stagflation" concerns. Ironically, however, the combination of high inflation and high interest rates increases the opportunity cost of holding gold, reducing its short-term appeal. This is the fundamental reason behind gold's sharp fluctuations, caught between safe-haven demand and real rate pressures.
Beyond short-term volatility, gold's long-term fundamentals remain robust. The Central Bank of Chile announced its first large-scale gold purchase since at least 2000, with the value of its gold reserves surging from $42 million to $1.108 billion in February, raising the share of gold in total reserves to 2.2%. This move is not isolated; central banks worldwide have been steadily increasing gold holdings to hedge against dollar dominance and geopolitical uncertainty. Central bank demand provides strong underlying support for gold prices, making a systemic collapse unlikely even if short-term corrections occur.
Silver has outperformed gold, falling 2% on Thursday but posting a year-to-date gain of over 146%. BMI forecasts silver prices to average $93 per ounce in 2026. With both precious metal and industrial attributes, silver benefits from dual drivers—renewable energy demand and investment interest—making it more elastic than gold and a potential alternative for capital allocation.
Looking ahead, the interplay of Middle East tensions, inflation trends, and Federal Reserve policy will determine gold's direction. In the near term, next week's Fed meeting will be critical. Markets are closely watching whether the Fed will remove "accommodative bias" from its policy statement and adjust median rate cut expectations for this year from one cut to none. If the Fed adopts a more hawkish stance due to energy price shocks, gold may test support below the $5,000 psychological level. However, as long as Middle East conflicts persist, keeping oil prices high and inflation expectations elevated, safe-haven demand for gold is unlikely to fade.
From a medium- to long-term perspective, the gold market in 2026 is set to remain volatile. Frequent geopolitical shocks, ongoing central bank purchases, and concerns about dollar credibility collectively form a strong foundation for a gold bull market. The current pullback may be a pause within a larger storm rather than a trend reversal. For investors, this could represent a strategic opportunity to build positions at elevated levels or add on dips—after all, in an era of uncertainty, gold serves not as a tool for quick profits, but as a final defense for preserving wealth.
Traders should monitor the U.S. Core PCE data for January, a key inflation metric for the Federal Reserve, due later in the session.
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