Why Gold is dropping even as geopolitical risks rise?

Gold prices crashed by around 6 percent on Thursday, dropping to $4551 per ounce, the lowest since early February.

The drop has raised concerns as the precious yellow metal is usually considered a safe-haven asset with investors typically prioritising it during times of geopolitical crises.

However, gold failed to enter a bullish phase despite the ongoing U.S.-Israel’s war against Iran and fears of it turning into a wider Middle Eastern conflict.

Here’s why gold prices are falling:

Gold and silver, often considered safe-haven assets, experienced steep price declines in their prices despite deepening geopolitical crises amid rising inflation and surging oil prices, which have shifted investor sentiment..

Expectations of U.S. Federal Reserve rate cuts are declining due to rising inflation, while the strong performance of the U.S. dollar has further undermined safe-haven demand.

Several investors are expecting the Federal Reserve to raise interest rates to combat surging inflation, which is also a major contributing factor in stopping gold prices from surging.

Oil prices are surging globally due to the closure of the Strait of Hormuz, a key oil route through which around 20 percent of the world’s oil supply passes.

This increase has absorbed much of the safe-haven demand, as investors directed their capital towards energy markets instead of buying gold and silver.