Gold Selloff Continues Despite Escalating Middle East Conflict

The recent gold selloff has left many investors puzzled, as escalating conflict in the Middle East had initially been expected to drive safe-haven demand for the precious metal. However, instead of rising, gold prices have fallen.

This unusual pattern suggests that investors are focusing less on pure safe-haven demand and more on changes in inflation, interest rates, and US dollar liquidity. Rising oil prices have reinforced concerns that inflation could accelerate again, which may lead markets to reassess expectations for Federal Reserve monetary policy and price in a longer-lasting high-interest-rate environment.

The key reason why gold has come under pressure recently is the rising oil prices and its impact on interest rates and inflation. If higher energy prices hinder the disinflation process, markets may reassess their expectations for Federal Reserve monetary policy and price in a longer-lasting high-interest-rate environment.

Gold's medium- to long-term support remains strong, driven by central bank purchases, inflows into gold ETFs, geopolitical risks, rising global government debt, and concerns over fiscal deficits and long-term inflation. However, the short-term bearish structure is dominant, with a potential breakdown below $4,500.