Gold prices have shown increased volatility in recent sessions as investors balance geopolitical risks with expectations around global monetary policy. While the precious metal remains near $5,000, analysts suggest that short-term volatility will persist as markets react to interest rate cues and developments in the Middle East conflict.
Gold prices declined on Monday as expectations for immediate interest rate cuts in the United States weakened. At the time of writing, the COMEX gold contract was trading around $5,015.40 per ounce, up 0.26%, after falling to an intraday low of $4,971.30.
The recent volatility has been driven by rising energy prices and reduced expectations of monetary easing by the US Federal Reserve. Higher interest rates tend to reduce the appeal of gold as the metal does not generate yield, making interest-bearing assets more attractive to investors.
“The precious metal faces selling pressure as uncertainty surrounding the monetary policy announcement by major central banks this week is dominating the intense geopolitical conflict in the Middle East,” Lallalit Srijandorn, editor at FXStreet, said in a report.
Despite the recent dip, global geopolitical tensions continue to support gold’s long-term outlook. The ongoing US-Iran conflict has entered its third week, increasing uncertainty across the Middle East.
Oil prices have remained elevated, trading above $100 per barrel, as the conflict threatens energy infrastructure and has raised concerns about disruptions to supply routes from the Strait of Hormuz, a critical global oil shipping lane. Higher crude oil prices can contribute to rising inflation by increasing production and transportation costs.
Recent market data indicate that investors are no longer fully pricing in even a 25-basis-point rate cut from the Fed before the end of the year, a sharp shift from earlier expectations that multiple cuts could occur.
According to Thu Lan Nguyen, head of FX and commodity research at Commerzbank, this change in rate expectations is one of the primary reasons gold has faced short-term selling pressure.
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Ed Yardeni foresees gold having a long runway ahead. Despite the recent volatility, the veteran strategist believes the shiny yellow metal has the potential to reach $6,000 an ounce by the end of 2026 (a 20% increase from current prices) and $10,000 by the end of the decade.
In his opinion, gold’s uptrend underscores a deeper shift in geopolitics, global reserves, and the search for assets investors can diversify into.
In a recent Bloomberg interview, Yardeni traced the origins of gold’s bull run to the moment the US and Europe froze nearly $300 billion in Russian central bank reserves following the invasion of Ukraine. That moment pushed governments and investors around the world to rethink where they keep their wealth.