Gold tumbles to two-month low as inflation hedge status fades

Gold prices fell to a two-month low on Thursday, as renewed uncertainty over the trajectory of the U.S.-Iran war gave the dollar a boost and drove oil prices higher.

At 3:43 a.m. ET, spot gold was trading around 1.6% lower at $4,385.85 an ounce. Front-month U.S. gold futures were down 1.3% to settle at $4,389.70.

Gold prices

The move put spot prices at their lowest since March 26.

The gold sell-off came as the U.S. dollar edged higher, making gold priced in the greenback more expensive for international holders.

But UBS strategists doubled down on their bullish stance on gold in a Thursday note. They said that while gold has come under pressure during the Iran war due to worries that high energy prices will lead to tighter monetary policy from the Federal Reserve and other central banks, the precious yellow metal should regain momentum as rate hike expectations ease.

UBS recently scaled back its year-end price target for gold to $5,500 an ounce. It had previously forecasted $5,900 per ounce by the end of the year.

"We remain positive on the outlook for gold and continue to view the precious metal as a source of diversification within portfolios," Mark Haefele, chief investment officer at UBS Global Wealth Management, said. "Although near-term performance may remain sensitive to U.S.-Iran headlines, energy prices, U.S. yields, and the dollar, the medium-term case remains supported by central bank demand, reserve diversification, elevated global debt burdens, and the prospect of easier Fed policy later in the year."

Bank of America currently has a year-end gold price target of $5,093 an ounce — an increase of about 16% from Thursday's spot price. The lender then sees the metal pulling back to $4,925 per ounce by the end of 2027.

"Gold has been overbought, but underinvested," BofA analysts said in a note to clients on Tuesday. "Prices have corrected after relentless ETF purchases subsided in autumn. The wider macro environment, including the U.S.' unorthodox economic policies are supportive, so we see upside risk to our forecasts."

A sustained dollar rally, higher real rates and increased scrap supply could pose downside risks to their forecasts, BofA's team said.

In a note on Tuesday, strategists at Kepler Cheuvreux said they were increasing their exposure to gold, noting that it "remains highly correlated to oil prices."

Michael Field, chief equity strategist at Morningstar, told CNBC in an email on Thursday morning that the drivers of the gold sell-off were "a while in the making."

"Investors are concerned that the Iran war is dragging on and that inflation is only going one way: up," he said. "Although traditionally gold and other precious metals are seen as an inflation hedge, they do not pay an income. When interest rates are low investors are willing to overlook this, but with interest rates likely to climb and inflation high, investors are more comforted by assets that at least give them an income."

Government bond yields in Europe, the U.S. and Japan edged higher on Thursday, as uncertainty around a potential U.S.-Iran peace deal saw a resurgence in inflation fears. The effective closure of the Strait of Hormuz, a critical shipping route, has kept oil prices elevated through the duration of the war, sparking concerns about broader pricing pressures.

Silver was also under pressure on Thursday morning, with spot prices tumbling 2.4% to trade at $72.85 an ounce. Silver futures shed 2.4% to hold just above the $73 mark.

Gold and silver both enjoyed record-smashing rallies in 2025, surging 66% and 135%, respectively, over the course of the year. However, they have seen much more volatile trade in 2026, with silver futures suffering their biggest single-day blow since the 1980s at the end of January.

Spot platinum was 1.7% lower at $1,884.95 per ounce on Thursday morning, and palladium was down 1.7% at $1,366.70.

In a series of notes this week, Daniel Hynes, senior commodities analyst at ANZ, attributed the sell-off to renewed hostilities in the Middle East, which are clouding the outlook for interest rates, as well as a rising dollar.

"Gold fell for a second day on concerns that the Middle East conflict will prolong inflation and keep interest rates high," he said on Friday. "Even the likelihood of a Middle East peace deal doesn't seem to temper those inflationary concerns. This is complicated by a recent surge in grocery prices in the U.S., due to a combination of bad weather, tariffs and a dwindling cattle herd."

Thursday will see the publication of the U.S. personal consumption expenditure price index reading for April, the Federal Reserve's preferred gauge of inflation. Economists polled by Dow Jones expect a month-over-month increase of 0.5% and a year-over-year rise of 3.8%.