Gold staged a sharp recovery after tumbling to its lowest level of 2026, following a surprise announcement from Donald Trump to postpone planned military strikes against Iran.
The initial sell-off was severe. Spot gold plunged as much as 8% in London trading, briefly touching near $4,100 per ounce a dramatic move that shook bullish sentiment across the precious metals market. However, markets quickly stabilised after news of a five-day pause in military action, with Trump citing “productive” discussions with Iran.
By late morning in New York, gold had recovered most of its losses, trading around $4,480 per ounce, down just 0.6% on the day. Futures on the COMEX remained softer but also rebounded significantly, while silver clawed back from earlier double-digit losses.
Worst Week in Decades Triggers Liquidation
The volatility follows gold’s worst weekly performance since the 1980s. Prior to the rebound, bullion had fallen for eight consecutive sessions, caught in a broader global market sell-off.
Ironically, the same geopolitical tensions that would typically support gold instead triggered heavy liquidation. Rising fears of prolonged conflict in the Middle East pushed inflation expectations higher, reducing the likelihood of near-term interest rate cuts and strengthening the US dollar both traditionally negative for gold.
At the same time, a tightening global liquidity environment forced investors to sell profitable positions. Gold, after a powerful multi-month rally, had become one of the most crowded trades in the market, making it a prime target for profit-taking.
As noted by Citigroup, gold is increasingly behaving like a risk asset during periods of market stress a pattern seen repeatedly over the past two decades. In broad “risk-off” events, investors often rotate into cash and the US dollar, rather than gold, at least initially.
Central Banks and Currency Pressures
Additional pressure may have come from central banks. Analysts at Natixis suggest that some monetary authorities could be selling gold or at least slowing their purchases to defend weakening currencies or fund rising energy costs linked to the conflict.
This would mark a shift from the aggressive central bank buying trend seen since 2022, which has been a major pillar supporting gold’s long-term bull market.
A Familiar Pattern Emerging
Market behaviour is beginning to mirror past crisis cycles. Following events like the Russian invasion of Ukraine, gold initially surged before entering a corrective phase as inflation shocks rippled through global markets.
According to BNP Paribas, similar patterns were observed during major economic shocks in 2008, 2020, and 2022 where gold first declined amid panic-driven liquidity demand, before transitioning into a sustained rally.
Outlook: Volatility Now, Strength Later
In the near term, gold is likely to remain highly volatile as geopolitical uncertainty persists. Ongoing tensions in the Middle East, combined with energy market disruptions, continue to create crosscurrents for precious metals.
However, the broader outlook remains constructive.
Once the current liquidity stress eases and markets stabilise, the underlying drivers for gold currency debasement, geopolitical risk, and long-term inflation are expected to reassert themselves.
For long-term investors, this type of volatility may present opportunity rather than risk.
