04.03.202612:24 Forex Analysis & Reviews: XAU/USD: why gold trades lower amid war in Middle East instead of growing

The current situation in the gold market challenges classical logic: amid acute geopolitical escalation between the US and Israel on one side and Iran on the other, an effective blockade of the Strait of Hormuz and the threat of a global energy crisis, gold is not rising but undergoing a deep correction. At first glance, this seems paradoxical. However, when you look at the fundamentals, the metal's behaviour is easy to explain. Gold has been hit by a "perfect storm," where the role of primary safe-haven has been temporarily taken by the US dollar, and inflationary risks have paradoxically turned against the metal.

On Wednesday, 4 March, XAU/USD is consolidating just above $5,150.00, facing resistance below the important short?term level of $5,180.00 (the 200?period EMA on the 1?hour chart) and showing modest intraday gains of around 1.50%. This is happening against the backdrop of ongoing investor concerns about a protracted Middle East conflict. US President Donald Trump said the military operation in Iran could last four to five weeks and that strikes will continue as long as necessary.

Geopolitics would normally push gold up, yet it fell from monthly highs above $5,400.00. To understand why, let's examine four key factors.

4 main reasons for gold's decline

1. The US dollar has seized the role of primary "safe haven". In extreme uncertainty and panic, investors seek the most reliable and liquid asset. At the start of the week, that asset was the US dollar. Dollar strength. The US dollar index (USDX) jumped on Tuesday, 3 March, to three?month highs near 99.65 as global capital rushed into the US currency.

• Negative correlation. Gold is priced in dollars. When the dollar strengthens sharply, buying gold becomes significantly more expensive for holders of other currencies, which naturally reduces demand.

2.The inflationary shock from oil turned against gold. The blockade of the Strait of Hormuz — through which roughly 20% of global oil passes — has triggered a spike in energy prices to levels not seen since June 2025. Iran warned it will not allow any oil to leave the region, adding fears of a new energy crisis.

• Stagflation risk. Rising oil prices push inflation higher while threatening economic growth, putting the Fed in a difficult position.
• Market panic. Rising sovereign?bond yields and falling equity markets signal deep stress. In such panic, investors prefer to hold cash rather than buy precious metals or stocks.
• 3.A hawkish shift in the Fed's rate expectations. This is key. Gold is extremely sensitive to interest rates because it yields no income.

• End of hopes for an imminent rate cut. Higher oil prices have increased inflation expectations. Markets now understand the Fed cannot cut rates quickly without fueling inflation further. A new energy crisis could delay or scale back plans for policy easing.
• Higher opportunity cost. When rate cut expectations dissipate, holding dollars or bonds becomes more attractive than gold. Investors take profits and move into yield-bearing assets.
• 4.Technical factors and profit-taking. Gold hit monthly highs above $5,400.00 before the drop.

• Overbought conditions: the market was extremely hot.
• Mass profit-taking: when panic began, investors with large paper gains rushed to lock them in. That created a snowball effect where sellers far outnumbered buyers.

Key takeaway

In the short term, fear of uncontrolled inflation and a tighter Federal Reserve (or merely, the abandonment of easing) has outweighed demand for gold as a safe haven. Investors are now more worried about the conflict's consequences, slowing global growth and sustained high rates than about the war itself.

Brief technical analysis

On the 1?hour chart, the short?term trend has turned bearish. Price retreated from the upper border of the rising channel on the 4?hour chart near $5,415.00, which had guided the rally since early February.

Key support levels:

• $5,160.00–5,130.00 (nearest support)
• $5,100.00 (round level)
• $5,050.00–4,985.00 (deeper support and the 144? and 200?period EMAs on the 4?hour chart)

Key resistance levels:

• $5,180.00 (near?term resistance and the 200?period EMA on the 1?hour chart)
• $5,200.00 (next barrier and the 144?period EMA on the 1?hour chart)
• $5,320.00–5,380.00 (recent trading zone)
• $5,400.00 (monthly high and round level)

The daily RSI (14) is recovering toward 55.40, indicating some remaining upside momentum. The broader uptrend remains intact but is under pressure.

Outlook

Despite the fall, economists do not see the uptrend in gold as broken. The correction is severe but likely technical. All eyes are on the $4,985.00–$5,100.00 zone: if gold can hold above that area, it has a chance to resume higher. Once panic subsides and stagflation concerns persist, gold will regain attractiveness. If it becomes clear that the Fed cannot fight inflation by raising interest rates (because of recession risk), the precious metal should benefit again.

What matters today?

Market participants are watching the ADP private sector employment report and the ISM services PMI. However, these data may take a back seat as attention is focused on geopolitical developments in the Middle East.

Conclusion

To sum up, despite gold's traditional role as a safe-haven asset amid geopolitical risk, its short-term behaviour can be driven by a range of factors such as:

• the strength of the US dollar and bond yields
• financial markets' reaction to geopolitical instability
• expectations about monetary policy easing versus continued high rates

In this situation, a stronger dollar amid risk concerns can push gold prices lower despite escalating geopolitical risk. However, the current drop is not the end of the gold era — it is a stark reminder that in moments of extreme stress, cash (the US dollar) often rules. In the medium and long term, the fundamental drivers for gold (geopolitics, inflation, and debt) remain in place. Investors seeking entry opportunities should watch the reaction at $5,100.00 and the key support near $5,000.00 closely.