NEW YORK — Gold is careening toward its worst weekly performance since February 1983, shedding roughly 10% across a five-session span that has stunned precious metals investors who had accumulated record long positions in bullion as a hedge against the very geopolitical risks now causing its collapse. Spot gold fell as much as 2.1% on Friday following the Wall Street Journal report on additional Pentagon deployments to the Strait of Hormuz, touching levels near $4,700 per ounce — its lowest print since early February — after having been above $5,400 just two weeks ago.
The mechanics driving the selloff are rooted in a fundamental shift in how markets are interpreting the Iran war's economic consequences. When U.S. and Israeli strikes first hit Iranian territory in late February, gold surged as investors fled to safety and priced in supply chain disruptions. But as the conflict has extended into its fourth week with no resolution in sight, the primary market reaction has shifted to pricing in a sustained inflation shock — one that reduces, rather than increases, the probability of Federal Reserve rate cuts.
Following the FOMC meeting Wednesday, at which Chair Jerome Powell signaled the central bank still expects only one cut in all of 2026 and acknowledged insufficient progress on inflation, bond market traders moved aggressively. By Friday, futures markets were pricing a 50% probability of a rate hike by October — a dramatic inversion from the three cuts priced just 90 days ago. Higher rates are directly bearish for gold, which pays no yield and becomes relatively less attractive when cash and short-duration bonds offer competitive real returns.
The dollar's sharp rally compounded the damage. The U.S. Dollar Index climbed meaningfully on Friday after the WSJ's Pentagon deployment report, raising the cost of dollar-priced commodities for overseas buyers and triggering forced liquidation in leveraged gold futures positions. Silver suffered even more severe losses, falling more than 10% on the week as industrial demand concerns layered onto the monetary headwinds.
Analysts at J.P. Morgan maintain a gold price target of $6,300 for late 2026, arguing the fundamental case — central bank reserve diversification, dollar debasement concerns, and the long-term inflationary effects of a prolonged Middle East conflict — remains structurally intact. Bloomberg Intelligence's Mike McGlone had warned earlier in the week that gold's best year since 1979 in 2025 may have presaged peak-price conditions heading into 2026's Hormuz disruption. The key technical level to monitor is $5,000 per ounce; a sustained break below it would signal a more serious structural shift.
For equity investors, the gold rout has implications beyond the precious metals complex. Mining stocks including Barrick Gold, Newmont, and Agnico Eagle have declined sharply with the metal. Gold-linked ETFs such as GLD and IAU are tracking lower on record outflows. The broader message from metals markets is that inflation risk, not deflation or recession, is the dominant macro regime — a signal that argues for energy over gold as the commodity of choice in the current environment.