Gold price falls below $4,700 again amid tug-of-war between strong dollar and stagflation risks

Geopolitical conflicts provide safe-haven support, while hawkish signals from the Federal Reserve suppress the market, leading to a tug-of-war between bulls and bears in gold trading.

With the Federal Reserve holding steady and geopolitical tensions escalating, gold prices experienced a sharp plunge.

Around 14:20 Beijing time on March 19, the London spot gold price turned downward from above $4,820 per ounce, dropping to a low of $4,686, nearly a 4% decline from the intraday high. As of the time of writing, it was below $4,700 per ounce, down more than 2% from the previous trading day.

On Wednesday (March 18) in the U.S., the Federal Reserve signaled a hawkish stance, and market expectations for rate cuts cooled. COMEX gold futures closed down 3.68% at $4,823.9 per ounce.

Market participants believe that ongoing geopolitical conflicts support safe-haven buying, but a strong dollar and hawkish Fed signals exert downward pressure, causing gold to fluctuate between gains and losses. Currently, the dollar index remains above 100. JPMorgan describes the current situation as “a collision between geopolitical concerns and a strong dollar rebound,” making short-term gold forecasts particularly difficult.

Rate hike expectations are dashed, and gold prices have experienced a rollercoaster ride

On the news front, early on March 19 Beijing time, the Federal Reserve announced it would keep the federal funds rate target range unchanged at 3.50%–3.75%, marking its second pause in rate hikes this year. The Fed also raised its inflation and GDP growth forecasts for the next two years.

As a result, overnight spot gold prices fell from around $5,000 per ounce to $4,806. However, the market’s intense reaction did not last long. Safe-haven buying surged amid fears of energy supply disruptions, and gold rebounded strongly, recouping most of its losses with a sharp “V-shaped” reversal, returning above $4,860. By 14:20 that afternoon, gold prices again sharply dropped in European trading, briefly falling below $4,700 and reaching a low of $4,686.

Xiao Cui, senior economist at Pictet Wealth Management in the U.S., told First Financial that given the short-term inflation risks from the Iran conflict and the relatively stable macroeconomic environment, the expected rate cuts in June and September might be delayed. However, the firm still maintains an overall dovish stance on Fed policy this year.

“In the short term, gold will continue to fluctuate between a strong dollar and high oil prices, which pose stagflation risks,” said the trader to First Financial. The safe-haven premium caused by geopolitical conflicts often features a “buy the rumor, sell the fact” pattern. After the conflict erupted, gold prices did not sustain support, and the short-term loss of safe-haven attributes further intensified the correction. But as long as conflicts in the Middle East persist and energy infrastructure remains threatened, safe-haven-driven gold buying will continue to support the bottom.

Revising inflation expectations, the logic between the dollar and gold is changing

At the same time as the Fed’s decision, tensions in the Middle East suddenly escalated, becoming another key factor influencing gold prices.

According to CCTV News, early on March 19 local time, Iran’s Islamic Revolutionary Guard Corps issued an emergency statement, announcing a large-scale missile attack on U.S.-related oil and energy facilities in the region. This was a direct retaliatory response to earlier attacks on Iran’s energy infrastructure.

In addition to attacks on multiple energy facilities in the Middle East, the Strait of Hormuz remains under threat of blockade, and Brent crude futures briefly surged past $107, reshaping inflation expectations.

The Fed’s post-meeting economic outlook showed the largest upward revisions in this year’s PCE inflation forecast and next year’s GDP growth forecast, both raised by 0.3 percentage points from previous estimates. The core PCE inflation forecast for this year and the GDP growth for the following years and longer term were also raised by 0.2 percentage points. Fed Chair Jerome Powell mentioned during the press conference that if oil prices remain high for an extended period, it would indeed suppress consumption, disposable income, and overall spending.

Joni Teves, a strategist at UBS, commented that the current suppression of gold prices by high real interest rates and a strong dollar is a short-term disturbance, but this suppression is real. The market is now more focused on the chain of “rising oil prices—inflation increase—Fed maintaining tightening,” rather than “oil shocks—economic slowdown—policy shift.” This single narrative significantly weakens gold’s macro hedge properties in the short term.

JPMorgan emphasizes that the longer energy disruptions last and the more substantial their impact on inflation and economic growth, the more likely gold’s macro outlook will “shift rapidly and significantly to the upside,” especially if the Fed turns to easing. The bank maintains a strong bullish outlook on gold, projecting an average price of $5,100 per ounce in Q1 2026, rising to $5,530 in Q2, $5,900 in Q3, and further climbing to $6,300 in Q4.

Shenwan Hongyuan Futures Research Institute believes that, from a medium- to long-term perspective, the price center of precious metals will continue to rise. Market concerns over the sustainability of U.S. fiscal policy are intensifying, coupled with global political and economic restructuring, diversification of central bank reserves, and ongoing de-dollarization. These factors—geopolitical risks, inflation hedging needs, de-dollarization, and central bank gold purchases—support a long-term upward trend in gold.

Joni Teves also noted that, unlike previous gold cycles driven by inflation or dollar trends, the current rally is primarily driven by long-term global uncertainty, declining hedge efficiency of traditional stock and bond portfolios, and rising investor demand for “real assets.” Gold is increasingly becoming a strategic asset allocation component rather than just a hedge tool.