LONDON – Gold’s oldest credential is its behavior during crises. When governments fight, investors buy the metal. The formula was reliable enough, over a long enough period, that it became embedded in the way the markets describe themselves: a flight to safety, or an attempt to obtain a safe haven. On Sunday, as new US-Iranian strikes continued across the Strait of Hormuz and Iranian missiles hit US military facilities in Kuwait and Bahrain, gold fell.
The spot price fell 0.7% to $4,061.35 per ounce in early Asian trading, extending its losses for the fourth week in a row. Gold has lost 25.4% from the record high of $5,595.42 it reached in late January, and the reason for Sunday’s decline was structurally identical to every decline before it: escalating military action near the Strait of Hormuz pushes crude oil prices higher, higher oil prices lead to inflation, inflation pushes the Fed to raise interest rates, and the Fed raising interest rates strengthens the dollar and increases the opportunity cost of holding the non-yielding bullion. The war, which was supposed to raise the price of gold to $5,000, pushed it towards $4,000.
The sequence of events began on Saturday morning when Iran’s Islamic Revolutionary Guard Corps attacked the Panama-flagged container ship, M/T Kiku, carrying Qatari oil through the Strait of Hormuz. The US military responded with strikes against ten Iranian military targets, including surveillance infrastructure, air defense sites, drone storage facilities, and communications systems near the strait. Iran responded in the early hours of Sunday morning, targeting US military facilities in Kuwait and Bahrain. A residential building near Bahrain International Airport was bombed, resulting in structural damage to the top floor. No injuries were reported. The two sides agreed to halt further action before peace talks scheduled to resume in Doha. US Vice President J.D. Vance went to Switzerland to conduct parallel diplomatic contacts with the Iranian delegation.
The ceasefire language did not reassure commodity markets. according to ReutersWest Texas Intermediate crude settled at $69.52 a barrel as traders continued to price a risk premium on any barrel moving through the Strait of Hormuz, through which nearly a fifth of the world’s maritime oil trade flows pass. This premium feeds directly into the inflation calculations that the Fed works against. The Fed held interest rates steady at 3.5%-3.75% at its June 16-17 meeting, but its updated chart indicated an average funds rate of 3.8% by the end of the year, with nine of eighteen participants expecting at least one additional hike. Markets are pricing in the first move as early as October, with the probability of a December hike near 80%. Federal Reserve Chairman Kevin Warsh reiterated commitment to controlling inflation despite pressure from the White House for cuts.
The transfer from Hormuz to gold takes place via the dollar. The dollar index has risen by 2.14% since the beginning of the month as expectations of an interest rate hike increase. Since gold prices are in dollars, a rising dollar puts pressure on what foreign buyers can afford at any given price, resulting in shrinking demand on margin. The 10-year Treasury yield, at 4.38%, creates a counterbalancing constraint: Investors in Treasury bonds accumulate returns; Gold investors do not. Both forces are sitting on the same side of the ledger, reinforcing the downward pressure that the safe haven theory, in this particular conflict, has failed to offset.
Silver fell stronger than gold, falling 1.1% to $58.51 per ounce. Platinum moved in the opposite direction, rising 1 percent to $1,630.13, while palladium added 0.8 percent to $1,218.92. The divergence reflects the stronger industrial demand base for platinum and the uneven way price expectations are distributed across the precious metals complex, with gold bearing the full weight of the monetary policy signal.
The analyst community is divided on the degree of damage but not on the near-term direction. Goldman Sachs revised its year-end gold target down $500 in mid-June, from $5,400 to $4,900, citing fading ETF flows, including the first monthly outflow from Asian gold funds since August 2025, and removing remaining interest rate cut expectations from its forecast. JPMorgan left its year-end target at $6,000 but trimmed its average estimate for the full year to $5,243, indicating weak near-term demand. The latest Kitco News survey of market participants showed bears outnumbering bulls on both Wall Street and Main Street, with a recovery to $5,000 described as conditional on three conditions: a meaningful de-escalation in the Gulf, a continued decline in oil prices, and a shift in the Fed’s guidance toward easing. None of these three appear in the current data.
The Golden Year followed the form of a thesis that worked until it encountered an unexpected variable. The metal reached an all-time high of $5,595.42 on January 29, driven by safe-haven buying at the start of the year, central bank accumulation, and expectations of federal interest rate cuts that have yet to be let down. The Fed’s move back toward raising interest rates, driven in part by inflation generated by the Iranian conflict itself through oil prices, has since removed nearly $1,530 from the price. Four consecutive weekly declines do not indicate one bad session, but rather a sustained re-evaluation of whether the safe-haven premium for gold is worth paying when the crisis pushing investors towards it simultaneously increases the cost of money.
Goldman Sachs analysts have formulated the dynamic clearly: the critical variable is not inflation itself, but what the central bank does in response to it. When geopolitical risks and monetary policy tightening move in opposite directions, as they have since January, the monetary signal dominates. A war in the Middle East that raises oil prices and keeps the Fed tight is not the same, for gold investors, as a war that generates safe-haven demand without an inflationary tail. The Iranian conflict was the second type since the strikes began.
The peace talks in Doha, and the parallel engagement in Switzerland, are therefore more important for the price of gold in the near term than anything that happens in the bullion market itself. If both sides hold and oil declines, the calculus of a rate hike will decline and gold will have a path back toward $4,500 or higher. If the ceasefire breaks down again due to another ship in the strait, the sequence of oil prices, inflation and the dollar will repeat again, and the next number that gold traders focus on is $4,000.
