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Gold fell more than 5% on Monday, reaching its weakest level of 2026 after logging its worst week in about 43 years, as an escalating Middle East conflict stoked inflation concerns and raised expectations of higher global interest rates.
Spot gold fell 5.8% to $4,226.16 per ounce as of 0633 GMT, its lowest since December 11, and extended losses into a ninth straight session.
The metal dropped more than 10% last week, its worst week since February 1983, and has also retreated more than 20% from its record peak of $5,594.82 an ounce reached on Jan. 29.
US gold futures for April delivery fell 7.5% to $4,231.80.
"With the Iranian conflict into its fourth week, and oil prices hanging around the $100 level, expectations have pivoted from rate cuts to potential rate hikes, which have tarnished gold's appeal from a yield point of view," said Tim Waterer, chief market analyst, KCM Trade.
Iran said on Sunday it would strike the energy and water systems of its Gulf neighbors in retaliation if US President Donald Trump follows through with his threat to hit Iran's electricity grid in 48 hours.
Asian shares fell, and oil prices stayed well above $110 a barrel.
The closure of the Strait of Hormuz has driven crude prices higher, exacerbating inflation through increased transportation and production costs.
While rising inflation typically boosts gold’s appeal as a hedge, higher interest rates tend to reduce demand for non-yielding assets.
According to CME’s FedWatch tool, market expectations for a US Federal Reserve rate hike this year have increased, with futures indicating a stronger likelihood of rate hikes rather than cuts by the end of 2026.
Other precious metals also saw sharp declines, with spot silver plunging 8.9% to $61.76 per ounce.
Platinum fell 9% to $1,749.31, while palladium dropped 5.2% to $1,330.50.
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