The Middle East has pushed gold into the shadow of oil. The metal rallied strongly through much of 2025–2026, but the US-Israel-Iran conflict has damped gold's volatility and shifted investor focus to other assets. While Brent and WTI ride a roller-coaster, XAU/USD languishes on the sidelines of global financial markets.

Pressure on gold comes not only from a sharply stronger dollar and a rally in US Treasury yields. Yes, gold is priced in dollars, so a surge in the USD index is plainly negative for the metal. Yes, XAU/USD pays no interest, so it loses out to Treasuries when yields rise. But recall that the long-running gold uptrend was built in large part on the "debasement" trade — a bet on the depreciation of fiat currencies and associated bonds amid central bank rate cuts.

This spring, the debasement trade reversed. Futures markets had earlier priced the ECB deposit rate to remain at 2% through 2026; now, derivatives anticipate two acts of monetary tightening. Markets once expected the Fed funds rate to fall by about 65 bps by year-end; that number is now down to roughly 36.5 bps. The higher the cost of borrowing, the worse for gold.

Only a swift end to the Middle East conflict could save the situation. If shipping normalises and oil production recovers, prices could quickly retreat. Inflation expectations would then ease, central banks would have little reason to worry, and the futures market would reassess rate paths. The Bloomberg reported two-year high outflows from gold ETFs could reverse into inflows. XAU/USD would rise.

Capital flows into gold-focused ETFs

It is no surprise that Donald Trump's remarks about a rapid end to the US-Israel-Iran confrontation served as a catalyst for a gold rally. The president believes a victory over Tehran can be achieved sooner than the previously cited four to five weeks.

But investors need proof. Bombing intensity in Iran is increasing, its leaders have shown no willingness to negotiate with the US, and reports of a tanker explosion near Abu Dhabi are further stoking tensions.

Gold is now bracing for US inflation releases. If CPI and PCE picked up even before the oil spike, the Fed is unlikely to cut rates — a bearish outcome for XAU/USD.

Technical view

On the daily chart, gold is forming a sub-pattern — a "spike and shelf" within a parent 1-2-3 reversal model. A breakout above resistance at $5,270 could be a buy signal. A rejection at that level, or a drop below $5,055 per ounce, should be viewed as grounds for initiating short positions in the metal.