Key Highlights 

  • Gold steadied near $5,000/oz after two consecutive weeks of losses, weighed down by surging oil prices and rising inflation expectations. 
  • US forces struck Iran's Kharg Island oil export hub over the weekend, triggering retaliatory attacks on Israel and Arab energy infrastructure. 
  • Higher energy prices have sharply reduced bets on central bank rate cuts globally, pressuring non-yielding assets like gold. 
  • The Federal Reserve is widely expected to hold rates steady this week, with major central banks across Europe, Asia, and emerging markets also meeting. 
  • Central bank gold demand remains a structural support, with China's PBOC extending purchases for a 16th consecutive month. 

The Trigger: US Strikes on Kharg Island Deepen Energy Crisis 

Gold held near the psychologically important $5,000 per ounce level on Monday, steadying after two straight weeks of losses. The precipitating event was a weekend US military strike on Iran's Kharg Island, the country's primary oil export facility, which immediately rattled global energy markets. Tehran responded with retaliatory strikes on Israel and on energy infrastructure across other Arab nations, pushing the US-Israeli conflict with Iran into its third week with no diplomatic resolution in sight. 

WTI crude remains volatile and well above $100 per barrel as markets price in sustained disruption to Middle Eastern supply chains, particularly the Strait of Hormuz, which channels roughly 20% of the world's seaborne oil. The escalation has transformed what was initially a geopolitical safe-haven bid for gold into a net headwind, as rising energy costs drive inflation expectations higher and reduce the probability of near-term central bank rate cuts. 

The Rate Channel Dominates 

The macro logic is straightforward: elevated oil prices lift transport, industrial, and consumer costs across the board. When inflation expectations rise, central banks lose room to cut rates. Higher rates mean higher opportunity costs for holding non-yielding assets, and gold pays no interest. 

This dynamic is now front and centre across global markets. The US Federal Reserve is widely expected to hold its policy rate unchanged at this week's meeting, a position that has hardened as crude prices climbed. The rate-hold expectations are not confined to the US either. Central banks in the Eurozone, UK, Japan, Switzerland, Australia, Canada, China, Brazil, and Russia are all scheduled to announce policy decisions this week. A broadly hawkish or neutral global stance is a meaningful headwind for bullion. 

The 10-year US Treasury yield has held near 4.12%, and the dollar has strengthened, both traditional suppressors of gold prices. When yields rise, the cost of holding gold relative to bonds increases; when the dollar firms, gold becomes more expensive for non-US buyers, compressing demand. 

Structural Support: Central Banks Continue Buying 

Despite the near-term pressure, the longer-term demand picture remains intact. China's PBOC extended its gold accumulation for a 16th consecutive month in February, part of a broader trend among central banks to diversify away from dollar-denominated reserves. J.P. Morgan forecasts 755 tonnes of central bank purchases in 2026, below the record years of 2023 to 2025 but still roughly double the pre-2022 average of 400 to 500 tonnes annually. This sustained institutional demand provides a structural floor beneath spot prices even as macro forces create volatility. 

What's Next: A Week of Central Bank Decisions 

With the Fed meeting this week alongside a dozen other major central banks, the policy signalling environment will be unusually dense. Any dovish surprises, particularly a softer tone from the Fed, could prompt a partial reversal of recent gold losses by pushing yields lower. Conversely, explicitly hawkish guidance would likely confirm the current repricing and push gold toward the $4,996 support level that analysts are closely watching. A sustained close below that threshold would bring $4,881 into focus as the next meaningful floor. 

Institutional price targets for gold in 2026 remain widely dispersed. Deutsche Bank, UBS, and Societe Generale have published bullish targets of $6,000 or above, while a February Reuters poll of 30 strategists showed a median forecast closer to $4,746. J.P. Morgan Global Research expects gold to average $5,055 in Q4 2026, rising toward $5,400 by end-2027. 

The unusual dynamic at play is that the same conflict driving oil and therefore inflation higher is also the kind of geopolitical crisis that would normally propel gold sharply upward. Right now, the rate-repricing channel is winning over the safe-haven channel. Whether that remains true depends on how central banks communicate this week and how the Middle East situation evolves. 

FAQs 

  1. Why is gold falling despite a major geopolitical conflict? 

 Normally, wars and crises boost gold as a safe-haven asset. But the US-Iran conflict has also triggered an oil price surge that raises inflation expectations. Higher inflation reduces the likelihood of rate cuts, which pushes bond yields and the dollar higher, both of which weigh on non-yielding gold. The rate effect is currently outweighing the safe-haven effect. 

  1. What happened at Kharg Island and why does it matter for gold? 

 US forces struck Kharg Island, Iran's main oil export hub. The attack disrupted regional oil supply and raised fears of wider Strait of Hormuz disruption. This sent crude prices sharply higher, which fed into inflation concerns that are now suppressing gold prices. 

  1. What central bank decisions should gold traders watch this week? 

 The US Federal Reserve is the most important, and it is widely expected to hold rates steady. Beyond the Fed, rate decisions from the Eurozone, UK, Japan, Australia, Canada, China, Brazil, and Switzerland are all due this week. Any unexpected dovish pivot could provide relief for gold. 

  1. What support level is most important for gold right now? 

 Analysts are focused on the $4,996 level. If gold closes below this on a sustained basis, the next level to watch is $4,881. Holding above $4,996 would suggest the decline is a temporary correction rather than a structural breakdown. 

  1. Is central bank demand still supportive of gold?  

Yes. China's PBOC has now bought gold for 16 consecutive months, and J.P. Morgan expects global central bank purchases to total around 755 tonnes in 2026, well above historical averages. This sustained demand acts as a structural support for prices even during short-term macro headwinds.