Gold prices have corrected sharply from the record highs reached earlier this year, even as global geopolitical tensions remain elevated due to the US-Iran war in the Middle East.
COMEX gold prices have declined about 11%, while MCX gold rate has dropped nearly 19% from their peak levels. The decline comes despite the ongoing escalation of the US–Iran war, which would typically boost demand for safe-haven assets.
On Monday, spot gold price was largely flat at $5,020.79 per ounce, while US gold futures for April delivery fell 0.7% to $5,024.90. On the domestic front, MCX gold rate for April futures declined by ₹1,937, or 1.22%, to ₹1,56,529 per 10 grams.
The recent weakness in gold prices has largely been driven by a stronger US dollar and rising global bond yields, which have increased the opportunity cost of holding the precious metal.
Meanwhile, crude oil prices have remained above $100 per barrel as the US–Iran war entered its third week, raising concerns about supply disruptions after the Strait of Hormuz, a critical global oil transit route, was effectively shut.
Rising Bond Yields
Global bond yields have risen sharply amid inflation concerns linked to surging energy prices.
The US 10-year Treasury yield recently moved closer to the 4% – 4.2% range, reflecting expectations of persistent inflation and tighter financial conditions.
In India, the benchmark 6.48% 2035 government bond yield rose to 6.6922%.
Similarly, Japanese government bond yields touched a one-month high on Monday as the escalating Middle East conflict fuelled expectations of higher inflation and potential policy tightening by the Bank of Japan. The 10-year JGB yield briefly rose to 2.25%, its highest level since February 10.
The rise in bond yields comes as surging crude oil prices have heightened inflation fears and reduced expectations of near-term rate cuts by global central banks, particularly the US Federal Reserve, which is widely expected to keep interest rates unchanged for a second consecutive meeting this week.
Vandana Bharti, Research Head – Commodity at SMC Global Securities, explained that the escalation of the US–Iran war has strengthened demand for traditional safe-haven assets such as the US dollar, crude oil, and US Treasuries.
Rising crude oil prices have also increased demand for the US dollar since global oil trade is largely denominated in dollars. As a result, the Dollar Index has risen about 2.85%, moving above the 100 mark, while investors have also increased allocations to US Treasury bonds, she added.
Gold is widely considered a hedge against inflation, but higher interest rates make yield-bearing assets like bonds more attractive, weighing on the metal’s appeal.
Is Gold Losing Its Shine to Bonds?
The recent rise in bond yields has increased the opportunity cost of holding gold, as the metal does not generate income while bonds now offer relatively attractive returns. In such an environment, some investors may shift a portion of their allocations toward government bonds, particularly when yields move meaningfully higher.
However, experts believe the situation is more nuanced.
“During periods of geopolitical uncertainty like the ongoing US–Iran tensions, investors typically move toward multiple safe-haven assets simultaneously. High-quality government bonds attract flows due to their stability and predictable income, while gold continues to remain relevant as a hedge against geopolitical risk, currency volatility, and potential inflation shocks,” said Nikunj Saraf, CEO, Choice Wealth.
Rather than signalling a clear shift away from gold, the current trend reflects broader diversification within safe-haven assets, he added.
“Rising yields may limit gold’s upside in the short term, but geopolitical risks and macroeconomic uncertainty continue to support strategic allocations to the metal in investor portfolios.”
Analysts believe that while the recent rise in global bond yields has created short-term headwinds for gold, it has not meaningfully diminished its role as a safe-haven asset.
“Investors are not abandoning gold in favour of bonds. During geopolitical crises, institutional portfolios typically diversify across multiple defensive assets rather than shift entirely into one. Bonds provide income stability and liquidity, while gold acts as a hedge against inflation, currency volatility, and geopolitical shocks,” said Harshal Dasani, Business Head at INVasset PMS.
With crude prices remaining volatile and global markets pricing in energy-driven inflation risks, gold continues to attract strategic allocations, he added.
According to Dasani, what the market is currently witnessing is a temporary balancing between yield-generating assets like bonds and crisis hedges like gold, rather than a structural shift away from gold as a safe-haven asset.
Short-Term Pressure, Long-Term Support
Gold initially rallied following the outbreak of the US–Iran war due to strong safe-haven demand but later corrected sharply.
“The decline was driven by profit-booking, margin calls, and broader market liquidation during panic conditions,” Bharti said.
She added that rising US bond yields have also reduced gold’s short-term attractiveness since the metal does not provide interest income.
“When the US 10-year Treasury yield moves above roughly 4%–4.28%, the opportunity cost of holding gold increases,” she explained.
In addition, war-driven inflation and elevated oil prices could delay interest rate cuts by the US Federal Reserve, which is also exerting near-term pressure on gold prices.
However, Bharti believes that geopolitical uncertainty and macroeconomic risks are likely to support a gradual recovery in gold prices over the longer term.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
