Middle East tensions lift bullion, but stronger dollar and Fed uncertainty cap the rally
MARKET INSIDER – Gold prices edged higher as investors sought safety amid escalating conflict in the Middle East, but gains remained limited as the U.S. dollar strengthened and markets reassessed the outlook for Federal Reserve policy. The geopolitical shock has revived gold’s traditional role as a hedge during periods of uncertainty—even as macro forces pull in the opposite direction.
Spot gold rose about 0.4% to roughly $5,156 per ounce, while U.S. futures climbed near $5,168. The precious metal had surged earlier in the week, briefly topping $5,400 after the launch of joint U.S.-Israeli strikes on Iran. Prices later retreated as the U.S. Dollar Index strengthened during the global flight to safety, demonstrating how the dollar and gold can compete for the same defensive capital.
The renewed surge in safe-haven demand follows another wave of Israeli strikes targeting Iranian infrastructure in Tehran, while Iranian missile attacks forced millions of civilians into bomb shelters across Israel. The escalation has also driven oil prices higher, raising fears that energy shocks could reignite global inflation—an outcome that complicates the trajectory of interest rates and limits gold’s upside.
Analysts note that gold typically benefits from geopolitical turmoil, but rising interest-rate expectations can blunt the rally. Higher yields increase the opportunity cost of holding non-yielding assets such as bullion. “There may be stronger safe-haven demand due to the conflict,” said Hamad Hussain of Capital Economics, “but the prospect of prolonged high energy prices could delay rate cuts or even raise the risk of additional tightening.”
Monetary policy uncertainty has intensified following President Donald Trump’s nomination of former Federal Reserve governor Kevin Warsh as the next chair of the Federal Reserve. The central bank’s latest Beige Book indicated modest economic growth and persistent price pressures, reinforcing expectations that policymakers may keep interest rates steady at their next meeting.
Investors are now watching incoming economic data—including weekly jobless claims and the U.S. employment report—for signals on whether inflation risks tied to energy prices could alter the Fed’s policy path. Any shift toward prolonged higher rates would likely strengthen the dollar further and restrain gold’s momentum.
Other precious metals moved mixed. Silver gained nearly 1%, platinum also edged higher, while palladium slipped. For markets, the broader takeaway is clear: gold remains the world’s preferred geopolitical hedge—but in an environment defined by both war and rising yields, its rally may be powerful yet uneven.
