By Samer Hasn, Senior Market Analyst at XS.com
Gold has declined approximately 1.5% today after failing to sustain the critical psychological level of $4,500 per ounce in spot trading, following a mild rebound amid a series of sharp declines.
The protracted conflict in the Middle East has adversely impacted various market channels, complicating gold’s efforts to capitalize on the geopolitical risk premium. Concurrently, the suppression of speculative long positioning in COMEX gold futures has left the metal increasingly susceptible to further downside pressure.
Conflicting signals persist regarding the potential trajectory of the conflict with Iran. President Trump’s statements on Monday, alongside reports of a 15-point ceasefire proposal and diplomatic progress, provided temporary market relief, which is a core component of the administration’s strategy to mitigate the economic costs of the war. Conversely, the Pentagon’s deployment of 2,000 additional troops to the region suggests the potential for a ground offensive and further escalation. This suggests that recent White House rhetoric regarding negotiations may function more as a tactical maneuver for market stabilization or strategic deception than as a genuine diplomatic off-ramp, in my opinion.
The upcoming weekend presents a significant window for further military escalation by U.S. or Israeli forces, likely followed by President Trump’s tactical maneuvers to suppress market volatility on Monday. This recurring pattern suggests a deliberate strategy of utilizing weekend kinetic operations followed by early-week rhetorical interventions to manage the energy risk premium.
Trump’s optimism isn’t real unless missiles and drone attacks cease and jets and bombers land.
Till that time, the market will keep pricing the cost of this war. According to the Wall Street Journal, energy CEOs warn that the global fuel crisis is more severe than the administration suggests. While officials predict a short-term disruption, executives cite far-reaching physical shortages and record volatility, noting that the Strait of Hormuz, which is now shuttered, is not yet fully priced into markets.
With rising energy inflation on the horizon, the market is no longer pricing in a chance of a rate cut by the Federal Reserve this year, according to CME FedWatch data. To make matters worse, some are starting to hedge against the possibility of a rate hike by December, with a 30% chance.
The dollar still has significant potential for recovery following a downtrend that has persisted since the beginning of last year, which could have a negative impact on gold prices. The Dollar Index (DXY) currently remains near its lowest level since 2022, sitting below the 100-point threshold. It has declined from the 110-level recorded last year, which was influenced by the so-called “Trump Trades,” and it has also dropped from the 115-level observed after the outbreak of the war between Russia and Ukraine.
U.S.-based physical gold ETFs have experienced consistent liquidations throughout the month, marked by sustained capital outflows. Simultaneously, recent margin-requirement adjustments and widespread profit-taking (or forced liquidations) within COMEX gold futures have hindered any significant price recovery.
According to the latest CFTC Commitment of Traders report, non-commercial long positions in gold futures have retraced more than 25% from the annual peak of 296,183 contracts to 215,961 as of last week. Speculative net positioning is currently approaching 2025 lows, while the commercial net position remains significantly negative at approximately 200,000 contracts, even after a recent period of modest narrowing.
Besides, the ongoing conflict presents a risk of substantial demand attrition within key physical gold markets. India and the Middle East represent a dominant share of global consumption across the jewelry, bar, and coin sectors. However, the confluence of wartime inflationary pressures and surging costs of energy and essential goods may compel consumers to prioritize cash liquidity over bullion when procuring essential inventory.
In the Middle East, the direct peg of most GCC currencies to the U.S. dollar, with the exception of Kuwait, provides a unique layer of monetary stability. Unlike other conflict zones where local currencies collapse and trigger a rush for gold, these fixed exchange rates preserve domestic value and discourage precautionary hoarding. A similar decline in demand could possibly occurr in India, where the historic depreciation of the Rupee in the wake of the conflict has severely eroded consumer purchasing power. Rather than acting as a catalyst for accumulation, the weakening currency makes gold increasingly cost-prohibitive for the average consumer, further dampening physical sales.
Data from the World Gold Council underscores the systemic importance of these regions. In 2025, India and the Middle East accounted for 28% and 10% of global jewelry demand, respectively, compared to just 8% from the United States. In the bars and coins segment, these regions held shares of 20% and 9%, respectively, significantly outpacing the 4% recorded in the U.S. Overall, total consumer demand was led by India at 24% and the Middle East at 9%, while the U.S. accounted for only 6%.
We will closely monitor the upcoming demand data to confirm or refute that hypothesis.
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