Gold prices extended their slide on Wednesday, falling to their lowest level in nearly two weeks as a strengthening US dollar and growing expectations of additional Federal Reserve interest-rate hikes outweighed geopolitical concerns and weakened demand for the traditional safe-haven asset.
Spot gold fell 1.63 per cent to $4,064.03 an ounce by mid-morning UAE time after touching its lowest level since June 11, while August futures slipped to $4,081.67 an ounce. The decline marks a sharp reversal from the record highs seen earlier this year when the US-Iran conflict and disruptions to global energy markets triggered a rush into bullion.
The latest sell-off highlights a significant shift in market sentiment. Investors who once viewed gold as the primary hedge against escalating Middle East tensions are increasingly focusing on inflation, interest rates and the outlook for US monetary policy.
The correction has also been keenly felt in Dubai’s gold market, where lower prices are beginning to draw bargain hunters back into jewellery showrooms and bullion counters after months of record-high rates.
According to the Dubai Jewellery Group, 24-carat gold fell Dh7.25 to Dh491.50 per gram on Wednesday, while 22-carat gold dropped to Dh455.25. Twenty-one-carat gold declined to Dh436.50 and 18-carat gold eased to Dh374.00 per gram.
The retreat comes after UAE gold prices briefly crossed the Dh540-per-gram mark for 24-carat gold during the height of geopolitical tensions earlier this year. Jewellery retailers say the latest correction could encourage residents and tourists to resume purchases, particularly ahead of the summer travel season.
For investors, however, the key driver remains the Federal Reserve.
The dollar climbed to its highest level in more than a year, making gold more expensive for international buyers and reducing global demand. At the same time, traders have significantly increased bets that the Federal Reserve will keep monetary policy restrictive for longer.
According to CME FedWatch data, markets are now pricing in up to three rate hikes before the end of the year, compared with expectations of only one increase before last week’s Federal Open Market Committee meeting.
Investors are also awaiting the release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation measure. Any signs of persistent price pressures could reinforce expectations that US interest rates will remain elevated into 2027.
Higher interest rates typically weigh on gold because the metal generates no income and must compete with bonds and other yield-bearing assets.
At the same time, geopolitical risk premiums that supported bullion earlier this year have started to fade.
Simon-Peter Massabni, head of Business Development at XS.com, said growing optimism surrounding a potential diplomatic agreement between Washington and Tehran has reduced demand for safe-haven assets.
“The recent price action reflects a significant shift in investors’ risk perceptions,” he said. “Markets have begun pricing in reduced geopolitical tensions in the Middle East, diminishing demand for traditional safe-haven assets, including gold.”
Negotiations between the US and Iran reportedly include provisions covering the reopening of the Strait of Hormuz, easing restrictions on Iranian oil exports and access to frozen overseas funds. A breakthrough could significantly increase global oil supplies and reduce inflationary pressures that have supported gold prices in recent months.
The impact is already visible in energy markets. Brent crude has retreated sharply from its conflict-driven highs as traders anticipate additional Iranian exports and improved shipping flows through the Gulf.
For gold, softer oil prices represent a double blow. Not only do they reduce inflation concerns, but they also diminish the need for investors to seek protection through precious metals.
Yet despite the recent weakness, analysts remain constructive on gold’s longer-term prospects.
One of the strongest pillars supporting bullion continues to be central-bank demand. According to the World Gold Council’s latest survey, a record 45 per cent of central banks plan to increase their gold reserves over the next 12 months as part of broader diversification strategies.
Major Wall Street institutions also continue to forecast higher prices over the medium term. Morgan Stanley recently projected gold could reach $5,200 an ounce, while Goldman Sachs, despite trimming its forecast by $500, still expects bullion to end the year around $4,900 an ounce.
Massabni said the metal’s long-term fundamentals remain intact despite short-term volatility.
“Persistent geopolitical uncertainty, ongoing central-bank purchases, reserve diversification strategies and future shifts in Federal Reserve policy continue to provide meaningful support for gold over the medium and long term,” he said.
Other precious metals also came under pressure, with silver falling 1.4 per cent to $61.11 an ounce, platinum declining 1.14 per cent to $1,634.45 and palladium slipping 0.49 per cent to $1,209.
For Dubai’s gold market, the latest correction presents a mixed picture. While investors grapple with the prospect of higher US rates, lower local prices are expected to stimulate consumer demand after months of subdued buying. Whether the current weakness proves temporary or marks the beginning of a deeper correction will largely depend on upcoming US inflation data and the Federal Reserve’s next moves.
