Gold Prices Aren't Doing What You'd Expect. Here's Why Experts Say That's Happening.

Key Takeaways

• A stronger U.S. dollar and lower expectations of interest rate cuts in the near-term are headwinds for gold prices.
• The precious metal’s outperformance over the past year might also explain why it isn’t doing much now, market experts say.

Get personalized, AI-powered answers built on 27+ years of trusted expertise.

ASK

Gold is usually seen as an insurance policy against geopolitical uncertainty. Not so much lately.

Amid continued tensions in the Middle East, spot gold’s price slipped about 1.6% Thursday to around $5,060 per troy ounce. Funds that track the precious metal and mining stocks—like the SPDR Gold Trust (GLD) and the VanEck Gold Miners ETF (GDX)—are poised to finish the week in the red. Silver prices are lower too.

There are many reasons the traditional haven asset isn’t performing as investors might have expected, according to market experts.

Among them: Investors have been bidding up the precious metal for the past 12 months, treating it more like a momentum trade; ongoing strikes on Iran have pushed up oil prices, raising the likelihood of higher inflation that may make the Federal Reserve less likely to cut rates in the near-term; and the value of the U.S. dollar has risen, which tends to push gold in the opposite direction.

WHY THIS MATTERS TO YOU

Gold is generally held out as a useful hedge when something goes bump in the night. Yet, the precious metal doesn’t appear to be the ballast for portfolios it was supposed to be amid escalating tensions in the Middle East.

“What you’re seeing is things that have run up a lot maybe not run up as much as they had before,” Stephen Dover of Franklin Templeton Institute told CNBC in response to a question about why investors didn’t appear to be treating gold as a haven asset amid recent geopolitical turmoil.

Crowded trades have unwound, a move more pronounced in silver than in gold, according to JPMorgan’s global markets strategy team. Meanwhile, they said, a lack of buying in the dollar has supported “safe haven demand” for the greenback. The U.S. Dollar Index, which measures the dollar’s strength against a basket of foreign currencies, was recently up about half a percentage point on Thursday.

Gold enthusiasts expect a turnaround. “The dollar bounce—boosted by the current conflict—is likely short-lived, and a resumption in the downtrend should be supportive for gold,” according to a recent note from the World Gold Council.

Related Education

Understanding the Dynamics Behind Gold Prices

What’s Behind the Sell-Off In Gold on Tuesday?

Meanwhile, a rise in oil prices powered by the supply-shock implications of conflict in the Middle East has fueled fears of higher inflation and, subsequently, lowered near-term expectations of a rate cut.

“Global central banks have historically not responded to oil price shocks on average, but have modestly tightened rates when inflation is high and/or oil price shocks are large,” Goldman Sachs’ global economic team wrote in a recent report. Higher rates are generally a headwind for gold because they make yield-bearing assets, like bonds, more attractive.

Traders have recently punted their expectation of when the Federal Open Market Committee might lower its benchmark rates from June to later in the fall, with 43% recently expecting a target range of 3.25% to 3.5% for the mid-September meeting, according to CME FedWatch.

Do you have a news tip for Investopedia reporters? Please email us at

[email protected]