- Gold traders appear confused amid the Middle East conflict.
- Fed rate hike bets prevail, increasing the metal’s opportunity cost.
- Strong central bank demand is keeping losses limited.
- Heightened inflation fears could push gold below the key $4,500 zone.
Inflation Concerns Eliminate Gold’s Haven Appeal
It has been a very confusing period for gold traders lately, as they have been trying to figure out whether selling it or buying it is the appropriate strategy amid tensions in the Middle East.
The conflict began on February 28, and the initial reaction of the precious metal was to spike higher amid safe-haven demand. But as soon as investors started realizing that the closure of the Strait of Hormuz could result in accelerating inflation, they started liquidating their positions, feeling the pressure of rising yields around the globe and increasing bets that the Fed is unlikely to cut interest rates further. The metal hit a high of $5,420 and then sold off to hit a low of $4,345 on March 23.
A recovery followed as soft data sparked some recession fears, allowing the metal to reclaim its safe-haven status. That said, this did not last long, as the continued closure of the Hormuz Strait prompted major central banks to sound even more hawkish, with the RBA raising interest rates three times already, the ECB seen raising interest rates twice by the end of the year, and a strong chance being assigned to a Fed rate increase by December.
Following the recovery, the metal hit resistance at $4,890 and pulled back to settle near the $4,500 zone. Even with a ceasefire in place and headlines hitting the wires every now and then, traders appear unwilling to scale back their rate hike bets, which is required for reducing the opportunity cost of holding gold and thereby allowing a stronger recovery. Perhaps this is because every time a headline hits the wire about a potential peace deal, it is quickly refuted by an exchange of hostile rhetoric between US and Iranian officials, or by new attacks.
Central Bank Demand Increases in Q1 2026
But gold did not extend its losses either. One would have expected that further advances in Treasury yields and increasing rate hike bets would exert more pressure on the metal. But it didn’t.
Maybe a major supportive force is the continued demand by major central banks. According to the World Gold Council, central bank demand increased by 17% in Q1 compared to Q4 2025. This could mean that the de-dollarization scheme continues as several nations want to loosen their dependency on the US economy, and that banks may still be following an inflation-hedging strategy.
Elevated Inflation Increases Fed Rate Hike Chances
Moving ahead, despite gold’s support from major central banks, it is hard to envision a strong and robust recovery toward record highs any time soon. Even if the US and Iran agree on further negotiations and peace talks, as long as the Strait of Hormuz remains closed, rising oil prices could result in stickier headline inflation that feeds through into underlying price pressures.
This could keep rate hike bets, and thereby Treasury yields, elevated, perhaps helping the US dollar recover some of its recently lost ground. According to Fed funds futures, a 25bps rate hike by the Fed is more than fully priced in for March 2027, while there is a strong 80% chance that this could happen by the end of this year.
The hawkish narrative was boosted by the latest inflation data, with both the CPI and PPI figures revealing hotter-than-expected inflation for April. With the headline PPI rate surging at 6%, it seems that CPI inflation could remain elevated in the months to come, as producer prices could translate into higher consumer prices for products arriving on store shelves a few months after production. What also argues for a prolonged period of high inflation is the elevated oil prices. Despite the latest pullback, oil prices remain well above the levels seen a year ago, keeping the year-on-year rate high, meaning that it may take some time before annual inflation rates retreat to the Fed’s 2% objective.
Thus, US data corroborating that view may allow investors to bring the rate-hike timing closer. A reasonable timing for the Fed to press the hike button may be September. June or July may be too soon, as those would be the first meetings under the leadership of Kevin Warsh. Let’s not forget that Kevin Warsh was appointed by US President Trump on the basis that he will be more dovish than his predecessor, Jerome Powell. So beginning his term with a rate hike may not be the best strategy. Having said that, a major dovish shift is unlikely as well amid all these inflationary threats. Also, Jerome Powell is expected to remain within the Federal Reserve as a governor, and his more hawkish views could translate into rate-hike votes.
How Long Will the $4,500 Region Hold?
From a technical standpoint, the risks from a more hawkish Fed could translate into downside risks for gold. A decisive dip below $4,500 could invite more bears into the game and perhaps see scope for declines toward the 200-day exponential moving average, or the $4,345 zone. A break lower could carry more bearish implications, perhaps targeting the low of March 23 at $4,100.
On the upside, the move signaling a brighter future may be a break above $4,770. This could initially target the $4,890 zone, marked by the high of April 17, a break of which could set the stage for advances toward the $5,200 area.
Editorial note: This recovered market brief has been cleaned and reclassified by Next Move Markets for educational market intelligence. It is not investment advice.
Next Move Markets desk view
For active traders, this brief should be read through the lens of precious metals rather than as a standalone headline. The key question is whether the theme behind Gold Loses Safe-Haven Edge as Geopolitics Fuel Inflation Fears can influence positioning beyond the first reaction. That means watching real yields, dollar direction, inflation expectations and safe-haven demand together, not in isolation.
A richer trading read comes from separating the catalyst from confirmation. The catalyst explains why markets are paying attention; confirmation comes from price action, liquidity and cross-asset behavior after the headline is digested. If those signals do not align, traders should treat the move as fragile and keep risk tighter.
What traders should watch next
- Whether real yields and the dollar move together or send conflicting signals for gold.
- How traders react around prior swing highs, lows and liquidity zones.
- Whether safe-haven flows are broad-based or limited to a short headline reaction.
- ETF flow, futures positioning and inflation data that could validate or weaken the move.
Risk context
This article is a market-intelligence brief, not a trade recommendation. Before acting on the theme, traders should define invalidation, position size and the time horizon of the setup. The same headline can support a short-term reaction and still fail as a multi-session trend if liquidity, policy expectations or broader sentiment move the other way.
Scenario map
The base case is that traders keep this theme on the radar while waiting for confirmation from real yields, dollar direction, inflation expectations and safe-haven demand. A stronger continuation scenario requires follow-through after the first reaction, preferably with related assets moving in the same direction. A failure scenario develops if the headline is quickly absorbed, volatility fades and price returns inside the previous range.
For precious metals, the most useful approach is to compare the article theme with live market behavior. If the market confirms the narrative, pullbacks can become more constructive. If the market rejects it, the headline becomes background noise rather than a trading driver.
Execution discipline
- Define the level first: traders should know where the idea is invalidated before thinking about upside or downside.
- Separate news from setup: Gold Loses Safe-Haven Edge as Geopolitics Fuel Inflation Fears may explain attention, but entry quality still depends on timing, liquidity and risk/reward.
- Watch confirmation: a clean move usually appears across related markets, not only in one isolated instrument.
- Control exposure: if volatility expands, smaller position sizing can be more professional than chasing the headline.
Next Move Markets treats this kind of brief as a starting point for preparation: identify the driver, map the scenarios, then wait for the market to prove which path is actually being priced.
