Gold erased last year's gains, falling for the ninth consecutive day as the Middle East war heightened inflation risk and raised expectations of interest rate hikes.

During the Asian session, gold prices plunged nearly 7%, falling below $4,100 an ounce. The sharp sell-off followed a shift in market expectations after the conflict escalated, most notably a large rise in energy prices. That scenario has materially altered the outlook for imminent rate cuts from the Federal Reserve and other major central banks.

Rising energy costs — a natural consequence of geopolitical instability — create significant headwinds for non-yielding gold. As expectations of further monetary easing fade, the metal's appeal as a safe-haven asset weakens. That contributed to gold posting its largest weekly decline since 1983, signalling intense pressure on this traditional defensive asset. Investors who had been counting on rate cuts to support gold are now revising strategies, triggering liquidations.

The unstable gold market mirrors the broader picture: oil prices are trading near their highest closing levels since mid-2022, and stock markets are plunging. Over the three weeks since the conflict began on February 28, some of the gold drop has been driven by forced selling as investors covered losses elsewhere in their portfolios.

While the scale of the gold sell-off is not unprecedented, the pace of decline is much faster than before.

Over the weekend, US President Donald Trump gave Iran 48 hours to reopen the Strait of Hormuz or face strikes on its power plants. Iran replied that it would fully close the strategic waterway and would strike energy, IT, and desalination infrastructure if its power facilities were attacked. Trump's ultimatum was issued on Saturday and expires today.

Meanwhile, US weekly government data released Friday showed hedge funds and other large speculators had increased their net long positions in gold to the highest level in seven weeks.

Silver also fell about 7%, to $63.19.

Technical outlook on gold

Buyers now need to reclaim nearby resistance at $4,186. That would allow a test of $4,249, above which further gains will be difficult. The more distant upside target is around $4,304. On the downside, bears will try to seize control of $4,124. If that level breaks, a breach of the range would deal a heavy blow to bullish positions and could push gold down to $4,062 with the potential to extend to $4,008.