Oil Price Rise Pressures Gold; Fed Policy Meeting May Be Near-Term Price Catalyst?

Since the conflict between the U.S. and Iran, spot gold prices have gradually retreated from their previous highs, hitting a recent low of $4,098.75 per ounce on March 23.

It is evident that the dominant market logic has shifted; gold price trends are completely contrary to traditional safe-haven logic. Despite escalating geopolitical tensions, gold has failed to strengthen on safe-haven demand, instead weakening amidst volatility and continuing to trend downward.

To understand the reasons behind this price action, one should focus on the gold price transmission chain.

First, the geopolitical conflict between the U.S. and Iran led to tightening crude oil supplies and rising risks to shipping routes, causing the two major crude oil futures to rise in response. The surge in oil prices also drove up transportation, production, and energy costs, thereby pushing inflation higher. Consequently, inflation expectations fluctuated, and the view that interest rates would remain higher for longer quickly returned to the market, impacting gold prices through this market adjustment.

Subsequently, the repricing of inflation expectations pushed U.S. Treasury yields higher, while the U.S. Dollar Index strengthened in tandem. The combination of these two factors created a dual bearish pressure on gold prices: as a non-yielding asset, the opportunity cost of holding gold rises with higher interest rates, and a stronger dollar dampens overseas demand, further intensifying downward pressure.

Simply put, crude oil is dominating the current market landscape. As long as oil prices remain firm, inflation expectations will stay elevated, supporting Treasury yields and keeping the dollar strong. Under this scenario, the conditions for buying gold remain unfavorable.

Only once oil prices collapse or the Federal Reserve resumes interest rate cuts will gold's weak position quickly reverse.

In the short term, geopolitical conflicts remain intense. Furthermore, due to the lag in the transmission of conflict to the oil trade, there is imminent pressure for onshore destocking. Consequently, at this juncture, regardless of the geopolitical trajectory, the Brent crude price pivot for 2Q26 is likely to remain elevated.

Gold prices may remain under pressure until the next key variables emerge—namely, the upcoming Federal Reserve policy meeting and central bank gold demand.

According to the latest Reuters poll, despite risks such as surging inflation and hawkish policy expectations triggered by the Middle East conflict, robust central bank demand and economic uncertainty are expected to offset these effects. Once tensions subside, gold's overall rally is likely to resume.

A survey of 31 analysts and traders conducted over the past three weeks shows a median gold price forecast for 2026 of $4,916 per ounce, the highest annual forecast since Reuters began the poll in 2012. This latest projection is higher than the $4,746.50 estimated three months ago. In contrast, a similar survey a year ago showed the average 2026 forecast was only $3,000.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.