Gold slips as conflict and data harden Fed view

Gold prices extended their retreat as investors recalibrated expectations for US interest rates after stronger labour-market signals collided with a worsening conflict in the Middle East, a combination that lifted the dollar, pushed oil higher and revived concerns that inflation could stay stubborn for longer. Spot bullion has come under pressure even as geopolitical risk remains elevated, an unusual pattern that reflects how sharply energy costs and policy expectations are shaping the market.

Bullion would ordinarily draw support from war risk, yet the current phase of the sell-off shows investors focusing more on the inflationary consequences of the fighting than on gold’s traditional safe-haven role. The conflict involving Iran has disrupted energy flows and kept the Strait of Hormuz under severe strain, driving Brent crude above $110 a barrel and reinforcing fears of a broader supply shock. Higher oil prices feed directly into inflation expectations, which in turn reduce the likelihood of quick monetary easing by the Federal Reserve. That shift has strengthened the US currency and raised Treasury yields, both of which tend to weigh on non-yielding assets such as gold.

US labour data added to that pressure. Weekly jobless claims fell unexpectedly to 202,000 in the week ended March 28, indicating layoffs remain low, while March non-farm payrolls rose by 178,000 and the unemployment rate edged down to 4.3%. Those figures suggested the labour market has retained enough resilience to keep policymakers cautious, even though other indicators have pointed to softer hiring demand. For gold traders, the message was clear: the case for near-term rate cuts has weakened, particularly at a moment when war-driven energy costs threaten to reignite inflation.

That tension between safe-haven demand and monetary restraint has become the defining feature of the gold market. When geopolitical crises deepen without creating a fresh inflation shock, bullion often benefits cleanly. This time, the opposite force is strong enough to blunt that support. The dollar has held firm as investors seek liquidity and brace for further escalation, while bond markets have responded to the prospect that central banks may need to stay tighter for longer. Gold, which rallied strongly earlier in the year, has therefore been vulnerable to profit-taking as fund managers rotate towards cash and dollar-linked assets.

Market participants are also weighing whether the war’s economic fallout could spread beyond energy into broader industrial costs, shipping and consumer prices. Businesses in parts of Europe and the Middle East are already reporting higher input costs and weaker confidence as fuel prices rise and supply chains come under strain. That backdrop matters for bullion because it complicates the usual recession trade. Slower growth might eventually support gold if central banks turn dovish, but a stagflationary mix of weak activity and persistent price pressure can delay that pivot. For now, traders appear to believe inflation risk is the more immediate threat.

Another factor behind the decline is positioning. Gold had enjoyed a powerful run before the latest reversal, leaving the market vulnerable to sharp liquidation once momentum broke. The metal’s retreat has not erased its long-term appeal, especially for central banks and investors seeking insurance against geopolitical fractures, but it has exposed how crowded the trade had become. Analysts continue to argue that any prolonged disruption to Gulf energy infrastructure, or any broader loss of confidence in fiat currencies, could restore support. At the same time, a durable rebound would probably require either a softer dollar, clearer evidence of cooling US inflation, or signs that the conflict is moving towards containment rather than expansion.